Economic inequality and Islamic Charity: An exploratory agent-based modeling approach

Abstract

Economic inequality is one of the pivotal issues for most of economic and social policy makers across the world to insure the sustainable economic growth and justice. In the mainstream school of economics, namely neoclassical theories, economic issues are dealt with in a mechanistic manner. Such a mainstream framework is majorly focused on investigating a socio-economic system based on an axiomatic scheme where reductionism approach plays a vital role. The major limitations of such theories include unbounded rationality of economic agents, reducing the economic aggregates to a set of predictable factors and lack of attention to adaptability and the evolutionary nature of economic agents. In tackling deficiencies of conventional economic models, in the past two decades, some new approaches have been recruited. One of those novel approaches is the Complex adaptive systems (CAS) framework which has shown a very promising performance in action. In contrast to mainstream school, under this framework, the economic phenomena are studied in an organic manner where the economic agents are supposed to be both boundedly rational and adaptive. According to it, the economic aggregates emerge out of the ways agents of a system decide and interact. As a powerful way of modeling CASs, Agent-based models (ABMs) has found a growing application among academicians and practitioners. ABMs show that how simple behavioral rules of agents and local interactions among them at micro-scale can generate surprisingly complex patterns at macro-scale. In this paper, ABMs have been used to show (1) how an economic inequality emerges in a system and to explain (2) how sadaqah as an Islamic charity rule can majorly help alleviating the inequality and how resource allocation strategies taken by charity entities can accelerate this alleviation.