An out-of-equilibrium model of the distributions of wealth

TL;DR

This paper introduces an out-of-equilibrium trade-investment model that accurately reproduces empirical wealth distributions across different societal segments, highlighting the importance of non-equilibrium transactions in economic systems.

Contribution

It presents a novel model based on trade and investment mechanisms that captures the entire wealth distribution, including the transition between different distribution types.

Findings

Model fits empirical wealth data across all ranges

Trade and investment mechanisms explain wealth distribution features

Out-of-equilibrium transactions are crucial in real economies

Abstract

The distribution of wealth among the members of a society is herein assumed to result from two fundamental mechanisms, trade and investment. An empirical distribution of wealth shows an abrupt change between the low-medium range, that may be fitted by a non-monotonic function with an exponential-like tail such as a Gamma distribution, and the high wealth range, that is well fitted by a Pareto or inverse power-law function. We demonstrate that an appropriate trade-investment model, depending on three adjustable parameters associated with the total wealth of a society, a social differentiation among agents, and economic volatility referred to as investment can successfully reproduce the distribution of empirical wealth data in the low, medium and high ranges. Finally, we provide an economic interpretation of the mechanisms in the model and, in particular, we discuss the difference between Classical and Neoclassical theories regarding the concepts of {\it value} and {\it price}. We consider the importance that out-of-equilibrium trade transactions, where the prices differ from values, have in real economic societies.