Entropy Geometry and Condensation in Wealth Allocation

TL;DR

This paper introduces a statistical framework for wealth distribution that explains how wealth condensation occurs, driven by the structure of economic state space and capacity limits, without relying on entropy maximization.

Contribution

It develops a novel geometric and configurational approach to wealth allocation, revealing condensation phenomena and exponential wealth distributions in both closed and open systems.

Findings

Wealth condensation occurs when capacity limits prevent absorption of additional wealth.

Exponential wealth distributions naturally emerge from counting configurations.

Condensation is driven by capacity constraints, not just excess wealth.

Abstract

We develop a statistical framework for wealth allocation in which agents hold discrete units of wealth and macrostates are defined by how wealth is distributed across agents. The structure of the economic state space is characterized through a value convertibility function, which captures how effectively additional wealth can be transformed into productive or meaningful value. The derivative of this function determines the effective number of internally distinct configurations available to an agent at a given wealth level. In a closed setting with fixed total wealth and a fixed number of agents, we show that equilibrium wealth distributions follow directly from unbiased counting of admissible configurations and may display a condensation phenomenon, where a finite fraction of total wealth accumulates onto a single agent once the remaining agents can no longer absorb additional wealth. We then extend the framework to open systems in which both total wealth and the number of agents may vary. By embedding the system within a larger closed environment and analyzing a finite subsystem, we show that exponential weighting in wealth and agent number emerges naturally from counting arguments alone, without invoking explicit optimization or entropy maximization principles. This extension leads to a richer interpretation of wealth concentration: accumulation is no longer driven solely by excess wealth, but by a balance between wealth growth and the system's capacity to accommodate new agents. Condensation arises when this capacity is limited, forcing surplus wealth to concentrate onto a few agents. The framework thus provides a minimal and structurally grounded description of wealth concentration in both closed and open economic settings.