Triggering a phase change in wealth distribution

wealth-distribution

Wealth distribution in the western world follows a curious pattern. For 95 per cent of the population, it follows a Boltzmann Gibbs distribution, in other words a straight line on a log-linear scale. For the top 5 per cent, however, wealth allocation follows a Pareto distribution, a straight line on a log-log scale, which is a far less equitable way of apportioning wealth.

Nobody really understands how this arrangement comes about but Javier Gonzalez-Estevez from the Universidad Nacional Experimental del Tachira in Venezuela and colleagues think they can thrown some light on the problem.

They have created an agent-based model in which each agent’s “wealth” evolves according to the way it interacts with its neighbours. Gonzalez-Estevez and co say that a simple model of this kind accurately reproduces the combination of Boltzmann Gibbs and Pareto distributions seen in real economies.

But get this. The teams says: “it is possible to bring the system from a particular wealth distribution to another one with a lower inequality by performing only a small change in the system configuration”. That’s an intriguing possibility.

In their latest work they say that it is possible to switch between Pareto and Boltzmann-Gibbs distributions, simply by increasing the number of neighbors each agent has.

In other words, this triggers a phase change in which wealth suddenly becomes more equally distributed (or vice versa).

That’s going to be a fascinating area for econophysicists to explore. Economists have always thought about that changing the distribution of wealth means tax collection and redistribution.

Now there’s a whole new way in which it might be approached. Gonzalez-Estevez and team make no suggestion as to how it might be done in real life economies but you can be sure that more than a few econophysicists will be thinking about how to trigger these kinds of phase changes for real.

Taxes as a way of redistributing wealth could become a thing of the past. But it will be as well to remember that not everyone wants to makes wealth distribution fairer.

Ref: arxiv.org/abs/0811.1064: Transition from Pareto to Boltzmann-Gibbs Behavior in a Deterministic Economic Model

One Response to “Triggering a phase change in wealth distribution”

  1. Raul Diaz-Legorburu says:

    After economicomics in the world markets of October 2008, the econophysicists of Táchira University sounds in the same mood of arxiv 0810.5306 “Economics needs a scientific revolution”.
    RDL