Wealth Distributions in Asset Exchange Models

TL;DR

This paper explores how simple microscopic models of pairwise asset exchanges can generate wealth distributions, including power laws that resemble real-world economic data.

Contribution

It introduces a generic framework for wealth exchange models and analyzes the resulting wealth distributions under various exchange rules, highlighting the emergence of power laws.

Findings

Greedy multiplicative exchanges produce power law wealth distributions.

Different exchange rules lead to distinct wealth distribution patterns.

The model qualitatively reproduces empirical wealth distribution features.

Abstract

How do individuals accumulate wealth as they interact economically? We outline the consequences of a simple microscopic model in which repeated pairwise exchanges of assets between individuals build the wealth distribution of a population. This distribution is determined for generic exchange rules --- transactions that involve a fixed amount or a fixed fraction of individual wealth, as well as random or greedy exchanges. In greedy multiplicative exchange, a continuously evolving power law wealth distribution arises, a feature that qualitatively mimics empirical observations.