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arXiv · 0710.1014

Wealth distribution in a System with Wealth-limited Interactions

Marisciel L. Palima·Eduardo J. David
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Abstract

We model a closed economic system with interactions that generates the features of empirical wealth distribution across all wealth brackets, namely a Gibbsian trend in the lower and middle wealth range and a Pareto trend in the higher range, by simply limiting the an agents' interaction to only agents with nearly the same wealth. To do this, we introduce a parameter BETA that limits the range on the wealth of a partner with which an agent is allowed to interact. We show that this wealth-limited interaction is enough to distribute wealth in a purely power law trend. If the interaction is not wealth limited, the wealth distribution is expectedly Gibbsian. The value of BETA where the transition from a purely Gibbsian law to a purely power law distribution happens depends on whether the choice of interaction partner is mutual nor not. For a non-mutual choice, where the richer agent gets to decide, the transition happens at BETA=1.0. For a mutual choice, the transition is at BETA= 0.60. In order to generate a mixed Gibbs-Pareto distribution, we apply another wealth-based rule that depends on the parameter w_limit. An agent whose wealth is below w_limit can choose any partner to interact with, while an agent whose wealth is above w_limit is subject to the wealth-limited range in his choice of partner. A Gibbs-Pareto distribution appears if both these wealth-based rules are applied.

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Marisciel L. Palima, Eduardo J. David. 2007-10-04. Wealth distribution in a System with Wealth-limited Interactions. https://arxiv.org/abs/0710.1014

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