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Understanding the causes of income inequality in complex economic systems

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Abstract

We suggest in this paper that inequality in economic systems can be profitably analysed using complex systems analysis. We explain how we can capture, analytically, complexity in an economic system by applying graph theory in networks. We then develop a highly stylised theoretical model of how income inequality arises naturally due to the fact that a skewed income distribution necessarily arises from “preferential attachment†in a complex economic system. We characterise this process, both in the market system broadly defined and, specifically, within a firm. It is argued that such a complex systems approach (despite being vastly simplified here) provides a superior basis for understanding income inequality compared to standard economic analysis.

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  • Brendan Markey-Towler & John Foster, 2013. "Understanding the causes of income inequality in complex economic systems," Discussion Papers Series 478, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uq2004:478
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    File URL: http://www.uq.edu.au/economics/abstract/478.pdf
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    1. repec:eee:phsmap:v:483:y:2017:i:c:p:423-437 is not listed on IDEAS
    2. Periklis Gogas & Rangan Gupta & Stephen M. Miller & Theophilos Papadimitriou & Georgios Antonios Sarantitis, 2015. "Income Inequality: A State-by-State Complex Network Analysis," Working Papers 201534, University of Pretoria, Department of Economics.
    3. Lapatinas Athanasios, 2014. "Understanding Voting Behaviour in Complex Political Systems," Mathematical Economics Letters, De Gruyter, vol. 2(3-4), pages 1-7, November.

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