Why Money Trickles Up - Wealth & Income Distributions

TL;DR

This paper explains wealth and income distributions using a simple model combining economics and Lotka-Volterra dynamics, showing how identical agents can produce realistic distributions and how saving schemes could reduce poverty.

Contribution

It introduces a unified model that captures both the power-law tail and log-normal body of wealth and income distributions with identical agents.

Findings

The model reproduces realistic wealth and income distributions.

A simple saving scheme can eliminate poverty with minimal cost.

The approach bridges classical economics and modern finance models.

Abstract

This paper combines ideas from classical economics and modern finance with the general Lotka-Volterra models of Levy & Solomon to provide straightforward explanations of wealth and income distributions. Using a simple and realistic economic formulation, the distributions of both wealth and income are fully explained. Both the power tail and the log-normal like body are fully captured. It is of note that the full distribution, including the power law tail, is created via the use of absolutely identical agents. It is further demonstrated that a simple scheme of compulsory saving could eliminate poverty at little cost to the taxpayer.