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A Statistical Equilibrium Model of Wealth Distribution

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  • Mishael Milakovic

Abstract

The paper develops a theoretical model of endogenous wealth distribution, showing that a logarithmic mean constraint in the maximum entropy formalism leads to a power law distribution. On the level of economic theory, the model implies two trade-offs: first, the higher the aggregate growth of wealth portfolios and, second, the higher the average turnover activity in individual portfolios, the less equal the distribution of wealth. Empirical estimates of the power law exponent are extracted from Lorenz type data for different countries in different time periods and a numerical example illustrates the model.

Suggested Citation

  • Mishael Milakovic, 2001. "A Statistical Equilibrium Model of Wealth Distribution," Computing in Economics and Finance 2001 214, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:214
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    References listed on IDEAS

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    Cited by:

    1. Sheri M. Markose, 2005. "Computability and Evolutionary Complexity: Markets as Complex Adaptive Systems (CAS)," Economic Journal, Royal Economic Society, vol. 115(504), pages 159-192, 06.
    2. Dover, Yaniv, 2004. "A short account of a connection of power laws to the information entropy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 334(3), pages 591-599.
    3. Domenico Delli Gatti & Corrado Di Guilmi & Mauro Gallegati & Simone Landini, 2012. "Reconstructing Aggregate Dynamics in Heterogeneous Agents Models. A Markovian Approach," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 117-146.

    More about this item

    Keywords

    Maximum entropy principle; statistical equilibrium; power laws; distribution of wealth;

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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