Effects of introduction of new resources and fragmentation of existing resources on limiting wealth distribution in asset exchange models

Details Effects of introduction of new resources and fragmentation of existing resources on limiting wealth distribution in asset exchange models Effects of introduction of new resources and fragmentation of existing resources on limiting wealth distribution in asset exchange models

2009-02-12

arxiv.org/abs/0902.2070v1

Physica A 388 (2009) 697

Economy

Quantitative Finance

Trading and Market Microstructure

15 pages and 6 figures

Scientific paper

10.1016/j.physa.2008.11.004

Pareto law, which states that wealth distribution in societies have a power-law tail, has been a subject of intensive investigations in statistical physics community. Several models have been employed to explain this behavior. However, most of the agent based models assume the conservation of number of agents and wealth. Both these assumptions are unrealistic. In this paper, we study the limiting wealth distribution when one or both of these assumptions are not valid. Given the universality of the law, we have tried to study the wealth distribution from the asset exchange models point of view. We consider models in which a) new agents enter the market at constant rate b) richer agents fragment with higher probability introducing newer agents in the system c) both fragmentation and entry of new agents is taking place. While models a) and c) do not conserve total wealth or number of agents, model b) conserves total wealth. All these models lead to a power-law tail in the wealth distribution pointing to the possibility that more generalized asset exchange models could help us to explain emergence of power-law tail in wealth distribution.

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