New economic windows on income and wealth: The k-generalized family of distributions

TL;DR

This paper introduces the k-generalized family of distributions as a novel approach to modeling income and wealth inequality, emphasizing the need for complex systems perspectives beyond traditional economic models.

Contribution

It proposes a new family of distributions rooted in complexity theory to better capture income and wealth distribution patterns.

Findings

The k-generalized distributions effectively model income and wealth inequalities.

Traditional models are inadequate for capturing distributional complexities.

Interdisciplinary approaches enhance understanding of economic inequality.

Abstract

Over the last decades, the distribution of income and wealth has been deteriorating in many countries, leading to increased inequalities within and between societies. This tendency has revived the interest in the subject greatly, yet it still receives very little attention within the realm of mainstream economic thinking. One reason for this is that the basic paradigm of "standard economics", the representative-agent General Equilibrium framework, is badly equipped to cope with distributional issues. Here we argue that when the economy is treated as a complex system composed of many heterogeneous interacting agents who give rise to emergent phenomena, to address the main stylized facts of income/wealth distribution requires leaving the toolbox of mainstream economics in favour of alternative approaches. The "k-generalized" family of income/wealth distributions, building on the categories of complexity, is an example of how advances in the field can be achieved within new interdisciplinary research contexts.