A Trade-Investment Model for Distribution of Wealth

Details A Trade-Investment Model for Distribution of Wealth A Trade-Investment Model for Distribution of Wealth

2003-06-23

arxiv.org/abs/cond-mat/0306579v2

Physics

Condensed Matter

Statistical Mechanics

23 pages, 8 figures, 2 tables- in press on a special issue of Physica D to be entitled "Anomalous Distributions, Nonlinear Dyn

Scientific paper

10.1016/j.physd.2004.01.031

Econophysics provides a strategy for understanding the potential mechanisms underlying the anomalous distribution of wealth found in real societies. We present a computational nonlinear stochastic model for the distribution of wealth that depends upon three parameters and two mechanisms: trade and investment. To avoid economic paradoxes, the trade mechanism is assumed to be related to the poorer trader's wealth and to statistically advantage the poorer of the two traders. The two mechanisms together are shown to generate a distribution that reproduces the full range of the empirical wealth distribution, and not only the inverse power-law tail that Pareto found in western societies at the end of the 19th century.

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