The Effect of Growth On Equality in Models of the Economy

TL;DR

This paper explores how different patterns of economic growth influence wealth equality using a modified agent-based asset exchange model, revealing that growth effects depend on growth rate, distribution, and exchange dynamics, with evidence of phase transitions.

Contribution

It introduces a modified AEM that captures the complex relationship between growth and equality, including phase transitions and ergodic behavior in large systems.

Findings

Growth's impact on wealth equality varies with growth rate and distribution.

There is a phase transition in the model affecting wealth distribution.

The model exhibits ergodic behavior in large systems.

Abstract

We investigate the relation between economic growth and equality in a modified version of the agent-based asset exchange model (AEM). The modified model is a driven system that for a range of parameter space is effectively ergodic in the limit of an infinite system. We find that the belief that "a rising tide lifts all boats" does not always apply, but the effect of growth on the wealth distribution depends on the nature of the growth. In particular, we find that the rate of growth, the way the growth is distributed, and the percentage of wealth exchange determine the degree of equality. We find strong numerical evidence that there is a phase transition in the modified model, and for a part of parameter space the modified AEM acts like a geometric random walk.