Description:

Abstract: What drives wealth inequality? An agent-based approach developed by physicists and mathematicians suggests that extreme wealth inequality is a natural occurrence of economic transactions. We extended the original models by adding economic growth and wealth redistribution and find that depending on how the growth of the wealth is distributed, characterized by a parameter l, there is a phase transition. For l < 1, there is economic mobility, no wealth condensation, and the model can be described using the tools of statistical mechanics. However, the wealth distribution is unrealistic. In contrast, for l > 1, there is wealth condensation and no economic mobility. I will discuss further extensions that generate the growth in wealth endogenously using an investment mechanism that distinguishes between wealth and income and generates a more realistic wealth distribution. These agent-based models are becoming realistic enough to provide insights into how economic systems work and how various policies might affect economies.

Speaker: Jan Tobochnik, Kalamazoo College

Host: Anupam Garg