Emergent Statistical Wealth Distributions in Simple Monetary Exchange Models: A Critical Review

TL;DR

This paper critically reviews models of wealth inequality emerging from agent interactions, highlighting historical context, limitations of simple exchange models, and analyzing how market power influences wealth distribution, with new insights on tail behaviors.

Contribution

It provides a critical comparison of simple wealth exchange models with economic principles and reports new results on the impact of market power on wealth distribution tails.

Findings

Market power increases inequality but does not produce Pareto tails.

Simple exchange models have limitations in replicating real wealth distributions.

Historical models from sociology are similar to recent molecular dynamics-inspired models.

Abstract

This paper reviews recent attempts at modelling inequality of wealth as an emergent phenomenon of interacting-agent processes. We point out that recent models of wealth condensation which draw their inspiration from molecular dynamics have, in fact, reinvented a process introduced quite some time ago by Angle (1986) in the sociological literature. We emphasize some problematic aspects of simple wealth exchange models and contrast them with a monetary model based on economic principles of market mediated exchange. The paper also reports new results on the influence of market power on the wealth distribution in statistical equilibrium. As it turns out, inequality increases but market power alone is not sufficient for changing the exponential tails of simple exchange models into Pareto tails.