Universal patterns of inequality

TL;DR

This paper investigates universal patterns of inequality across money, income, and energy consumption, proposing models that explain their distributions and analyzing global inequality trends over time.

Contribution

It introduces a stochastic model combining additive and multiplicative processes to describe income distribution, matching empirical data and explaining inequality growth.

Findings

Income distribution interpolates between exponential and power law.

Increase in US income inequality is driven by upper tail growth.

Energy consumption distribution is approximately exponential globally.

Abstract

Probability distributions of money, income, and energy consumption per capita are studied for ensembles of economic agents. The principle of entropy maximization for partitioning of a limited resource gives exponential distributions for the investigated variables. A non-equilibrium difference of money temperatures between different systems generates net fluxes of money and population. To describe income distribution, a stochastic process with additive and multiplicative components is introduced. The resultant distribution interpolates between exponential at the low end and power law at the high end, in agreement with the empirical data for USA. We show that the increase of income inequality in USA originates primarily from the increase of the income fraction going to the upper tail, which now exceeds 20% of the total income. Analyzing the data from the World Resources Institute, we find that the distribution of energy consumption per capita around the world can be approximately described by the exponential function. Comparing the data for 1990, 2000, and 2005, we discuss the effect of globalization on the inequality of energy consumption.