Apr 9th, 2007
World’s economies show similarities in economic inequality
In the 1890s, Vilfredo Pareto noticed a large disparity between the richest citizens of Italy and the rest of the population. This distribution became known as the Pareto Principe, or the 80/20 rule. Recently, scientists have uncovered some interesting facts underlying the Pareto Principle.
“While the distribution of the richest 10% does indeed follow a different behavior (power law) than the rest (Gibbs or log-normal), one need not assume different dynamics at work in the two cases,” Chatterjee explained to PhysOrg.com. “In fact, both types of distributions can arise from the same model. In the case of the random savings model, the agents having the highest savings fractions will have a higher probability of ending up in the richest 10% of the population, while in the random thrift model, the agents with higher thrift value generally tend to be the richest.
“As an agent gets richer, a feedback effect occurs by which the rich are more likely to gain from a transaction than the poorer agents—thereby resulting in an accumulation of assets for the richer players that is manifested as a power law tail.”
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