Stochastic Effects in a Discretized Kinetic Model of Economic Exchange

TL;DR

This paper introduces a novel stochastic kinetic model connecting Langevin and Fokker-Planck approaches to better understand economic interactions, revealing insights into wealth inequality and social mobility.

Contribution

It develops a new framework integrating stochastic effects into kinetic models, bridging two analytical techniques for economic systems.

Findings

Positive correlation between Gini index and total wealth.

Wealth inequality decreases with increased social mobility.

Model aligns with observed economic data.

Abstract

Linear stochastic models and discretized kinetic theory are two complementary analytical techniques used for the investigation of complex systems of economic interactions. The former employ Langevin equations, with an emphasis on stock trade; the latter is based on systems of ordinary differential equations and is better suited for the description of binary interactions, taxation and welfare redistribution. We propose a new framework which establishes a connection between the two approaches by introducing stochastic effects into the kinetic model based on Langevin and Fokker-Planck formalisms. Numerical simulations of the resulting model indicate positive correlations between the Gini index and the total wealth, that suggests a growing inequality with increasing income. Further analysis shows a simultaneous decrease in inequality as social mobility increases in presence of a conserved total wealth, in conformity with economic data.