- From that perspective, the economy is often viewed as a thermodynamic system in which the distribution of income among the agents is readily identified with the distribution of energy among the particles in a gas.
- In particular, a class of kinetic exchange models have provided a simple mechanism for understanding the unequal distribution of assets. These models have been successful to capture the key factors in economic interactions that results in different economies with different socio-political structures converging to similar forms of unequal distribution of resources.
- Each of the agents produces a single perishable commodity which is different from all other commodities produced. Money is treated as a non-perishable commodity which facilitates transactions. All commodities along with money can enter the utility function of any agent as arguments. These agents care for their future consumption and hence they care about their savings in the current period as well. Initially, all of these agents are endowed with an equal amount of money which is assumed to be unity. As will be shown, the steady state distribution of money is independent of the initial amount endowment.
- It is empirically found that the bulk (about 90%) of the population fits a gamma like distribution: after an initial steep rise, an exponential decay is seen in the number of persons with income/wealth. There are considerable deviations from exponential decay in the high income/wealth range and the income and wealth data in that range (for the top 5-10% of the population in any country) fit well to Pareto distribution (power law) with the value of the exponent ranging between 1 and 3.
Source: Anindya S. Chakrabarti and Bikas K. Chakrabarti (2010). Statistical Theories of Income and Wealth Distribution. Economics: The Open-Access, Open-Assessment E-Journal, Vol. 4, 2010-4.http://dx.doi.org/10.5018/economics-ejournal.ja.2010-4