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Maximum Entropy Power Laws: An Application to the Tail of Wealth Distributions

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  • Mishael Milakovic'

Abstract

tatistical equilibrium denotes the distribution of wealth that can be achieved in the largest number of ways while satisfying a first moment constraint on the rate of growth in wealth portfolios. Maximizing entropy subject to a logarithmic constraint yields a power law distribution whose characteristic exponent depends positively on the minimum wealth level, and inversely on the rate of growth and the average number of changes in the composition of wealth portfolios. Put differently, the distribution of wealth will be more unequal the faster the rate of growth in wealth and also the higher the number of turnovers.

Suggested Citation

  • Mishael Milakovic', 2003. "Maximum Entropy Power Laws: An Application to the Tail of Wealth Distributions," LEM Papers Series 2003/01, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2003/01
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    References listed on IDEAS

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    7. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Papers cond-mat/9804100, arXiv.org.
    8. Davies, James B. & Sandstrom, Susanna & Shorrocks, Anthony & Wolff, Edward N., 2006. "The World Distribution of Household Wealth," Conference papers 331490, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Brock, W A, 1999. "Scaling in Economics: A Reader's Guide," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 8(3), pages 409-446, September.
    10. Oulton, Nicholas, 1976. "Inheritance and the Distribution of Wealth," Oxford Economic Papers, Oxford University Press, vol. 28(1), pages 86-101, March.
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    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Schools of Economic Thought, Epistemology of Economics > Heterodox Approaches > Thermoeconomics > The economy system and entropy minimization

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    Cited by:

    1. Ellis Scharfenaker & Gregor Semieniuk, 2017. "A Statistical Equilibrium Approach to the Distribution of Profit Rates," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 465-499, July.

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