Inequality and risk aversion in economies open to altruistic attitudes

TL;DR

This paper models the relationship between agents' risk aversion and income inequality, showing that long-term income distributions follow weak Pareto laws linked to risk preferences, with implications for controlling income concentration.

Contribution

It introduces a model connecting risk aversion to income distribution, characterizing long-term outcomes as weak Pareto laws with parameters derived from agent interactions.

Findings

Long-term income distributions follow weak Pareto laws.

The Pareto exponent is linked to the risk aversion index.

Agent interaction patterns influence income inequality levels.

Abstract

This paper attempts to find a relationship between agents' risk aversion and inequality of incomes. Specifically, a model is proposed for the evolution in time of surplus/deficit distribution, and the long-time distributions are characterized almost completely. They turn out to be weak Pareto laws with exponent linked to the relative risk aversion index which, in turn, is supposed to be the same for every agent. On the one hand, the aforesaid link is expressed by an affine transformation. On the other hand, the level of the relative risk aversion index results from a frequency distribution of observable quantities stemming from how agents interact in an economic sense. Combination of these facts is conducive to the specification of qualitative and quantitative characteristics of actions fit for the control of income concentration.