An agent-based model of the observed distribution of wealth in the United States

Hunter A. Vallejos, James J. Nutaro, Kalyan S. Perumalla

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

Pareto cautiously asserted that the wealth and income distributions which bear his name are universal, basing his argument on observations of this distribution in many different types of economies. In this paper, we present an agent based model (and a scalable approximation of it) in a closely related spirit. The central feature of this model is that wealth enables an individual to secure more wealth. Specifically, the important and novel feature of this model is its ability to simultaneously produce both the Pareto distribution observed in empirical data for the top 10% of the population and the exponential distribution observed for the lower 90%. We show that the model produces these distributions of wealth when initialized with an equitable distribution. Then, using historical data, we initialize the model with US wealth shares in 1988 and show that the model tracks wealth share changes from 1988 to 2012. Simulations to 2088 project that the top 0.01% of the population will possess more than 70% of the total wealth in the economy.

Original languageEnglish
Pages (from-to)641-656
Number of pages16
JournalJournal of Economic Interaction and Coordination
Volume13
Issue number3
DOIs
StatePublished - Oct 1 2018

Funding

This manuscript has been authored by UT-Battelle, LLC, under Contract No. DE-AC0500OR22725 with the US Department of Energy. The United States Government retains and the publisher, by accepting the article for publication, acknowledges that the United States Government retains a non-exclusive, paid-up, irrevocable, world-wide license to publish or reproduce the published form of this manuscript, or allow others to do so, for the United States Government purposes. The Department of Energy will provide public access to these results of federally sponsored research in accordance with the DOE Public Access Plan (http://energy.gov/downloads/doe-public-access-plan). Research sponsored by the Laboratory Directed Research and Development Program of Oak Ridge National Laboratory, managed by UT-Battelle, LLC, for the US Department of Energy. Source code for the model is available at http://web. ornl.gov/~nutarojj/wealth_model.zip. This manuscript has been authored by UT-Battelle, LLC, under Contract No. DE-AC0500OR22725 with the US Department of Energy. The United States Government retains and the publisher, by accepting the article for publication, acknowledges that the United States Government retains a non-exclusive, paid-up, irrevocable, world-wide license to publish or reproduce the published form of this manuscript, or allow others to do so, for the United States Government purposes. The Department of Energy will provide public access to these results of federally sponsored research in accordance with the DOE Public Access Plan (http://energy.gov/downloads/doe-public-access-plan). Research sponsored by the Laboratory Directed Research and Development Program of Oak Ridge National Laboratory, managed by UT-Battelle, LLC, for the US Department of Energy. Source code for the model is available at http://web.ornl.gov/~nutarojj/wealth_model.zip.

FundersFunder number
DOE Public Access Plan
US Department of Energy
UT-Battelle
United States Government
Oak Ridge National Laboratory
Laboratory Directed Research and Development

    Keywords

    • Agent-based model
    • Boltzmann–Gibbs
    • Income
    • Inequality
    • Pareto
    • Wealth

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