Why equal opportunities lead to maximum inequality? The wealth condensation paradox generally solved

Cardoso, Ben-Hur Francisco; Gonçalves, Sebastián; Iglesias, J. R.

doi:10.1016/j.chaos.2023.113181

Cited by 4 publications

(4 citation statements)

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“…As we stressed before, numerical and analytical studies with the Yard-Sale model, as well as its variations, consistently lead to condensation. Recently, we have given a general proof that all models following a fair principle, including the Yard-Sale, inevitably lead to condensation [10,11]. To overcome this fate, different rules of interaction have been applied, for example increasing the probability of favoring the poorer agent in a transaction [19,20] or introducing a cut-off that avoids interactions between agents below and above this cut-off [29].…”

Section: The Modelmentioning

confidence: 99%

“…Even simple exchange models used in econophysics to simulate trade and economic exchanges demonstrate this phenomenon. In two recent papers [ 10 , 11 ], we have demonstrated that exchange models considered fair , where agents participating in trade have equal chances of earning money, inevitably lead to the total concentration of wealth in the hands of a single individual or a select few. Moreover, most microscopic models of exchange among economic agents exhibit this behavior (see ref.…”

Section: Introductionmentioning

confidence: 99%

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Taxes, Inequality, and Equal Opportunities

Iglesias,

Cardoso,

Gonçalves

2023

Entropy

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Extreme inequality represents a grave challenge for impoverished individuals and poses a threat to economic growth and stability. Despite the fulfillment of affirmative action measures aimed at promoting equal opportunities, they often prove inadequate in effectively reducing inequality. Mathematical models and simulations have demonstrated that even when equal opportunities are present, wealth tends to concentrate in the hands of a privileged few, leaving the majority of the population in dire poverty. This phenomenon, known as condensation, has been shown to be an inevitable outcome in economic models that rely on fair exchange. In light of the escalating levels of inequality in the 21st century and the significant state intervention necessitated by the recent COVID-19 pandemic, an increasing number of scholars are abandoning neo-liberal ideologies. Instead, they propose a more robust role for the state in the economy, utilizing mechanisms such as taxation, regulation, and universal allocations. This paper begins with the assumption that state intervention is essential to effectively reduce inequality and to revitalize the economy. Subsequently, it conducts a comparative analysis of various taxation and redistribution mechanisms, with a particular emphasis on their impact on inequality indices, including the Gini coefficient. Specifically, it compares the effects of fortune and consumption-based taxation, as well as universal redistribution mechanisms or targeted redistribution mechanisms aimed at assisting the most economically disadvantaged individuals. The results suggest that fortune taxation are more effective than consumption-based taxation to reduce inequality.

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Section: The Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Taxes, Inequality, and Equal Opportunities

Iglesias,

Cardoso,

Gonçalves

2023

Entropy

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“…The answer is yes. The Chakraborti model [20], widely known today as the Yard-Sale model, as in [21], has attracted a lot of attention (see, e.g., [22][23][24]). In its barest form [20], in the Chakraborti model (denoted here as the C-model), two randomly chosen traders at any point in time participate in an exchange trade when the richer one saves the excess over the poorer one's wealth and goes for a random exchange of the total available wealth (double that of the poorer one).…”

Section: Introductionmentioning

confidence: 99%

“…The slow but inevitable attractor fixed point of the trade dynamics arrives when all wealth ends up in the hand of just one trader, no matter how large the population (N) is. Because of the particular form of savings during a trade, whenever one becomes a pauper, nobody trades with him, and all gradually condense to the state where one trader acquires the entire wealth and the trade dynamics stop (see [22]). External perturbations, like regular redistribution of tax collections by the central government (or any non-playing agent), can help relieve [23,24] the condensation phenomenon, and this seems to fit well with many observed situations [23].…”

Section: Introductionmentioning

confidence: 99%

Kinetic Models of Wealth Distribution with Extreme Inequality: Numerical Study of Their Stability against Random Exchanges

Ghosh¹,

Banerjee

Goswami

et al. 2023

Entropy

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In view of some recent reports on global wealth inequality, where a small number (often a handful) of people own more wealth than 50% of the world’s population, we explored if kinetic exchange models of markets could ever capture features where a significant fraction of wealth can concentrate in the hands of a few as the market size N approaches infinity. One existing example of such a kinetic exchange model is the Chakraborti or Yard-Sale model; in the absence of tax redistribution, etc., all wealth ultimately condenses into the hands of a single individual (for any value of N), and the market dynamics stop. With tax redistribution, etc., steady-state dynamics are shown to have remarkable applicability in many cases in our extremely unequal world. We show that another kinetic exchange model (called the Banerjee model) has intriguing intrinsic dynamics, where only ten rich traders or agents possess about 99.98% of the total wealth in the steady state (without any tax, etc., like external manipulation) for any large N value. We will discuss the statistical features of this model using Monte Carlo simulations. We will also demonstrate that if each trader has a non-zero probability f of engaging in random exchanges, then these condensations of wealth (e.g., 100% in the hand of one agent in the Chakraborti model, or about 99.98% in the hands of ten agents in the Banerjee model) disappear in the large N limit. Moreover, due to the built-in possibility of random exchange dynamics in the earlier proposed Goswami–Sen model, where the exchange probability decreases with the inverse power of the wealth difference between trading pairs, one does not see any wealth condensation phenomena. In this paper, we explore these aspects of statistics of these intriguing models.

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Scaling in local to global condensation of wealth on sparse networks

Lee,

Lee

2023

Phys. Rev. E

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Why equal opportunities lead to maximum inequality? The wealth condensation paradox generally solved

Cited by 4 publications

References 23 publications

Taxes, Inequality, and Equal Opportunities

Taxes, Inequality, and Equal Opportunities

Kinetic Models of Wealth Distribution with Extreme Inequality: Numerical Study of Their Stability against Random Exchanges

Scaling in local to global condensation of wealth on sparse networks

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