Book contents
- Frontmatter
- Contents
- Preface
- 1 Introduction
- 2 Income and wealth distribution data for different countries
- 3 Major socioeconomic modelling
- 4 Market exchanges and scattering process
- 5 Analytic structure of the kinetic exchange market models
- 6 Microeconomic foundation of the kinetic exchange models
- 7 Dynamics: generation of income, inequality and development
- 8 Outlook
- References
- Index
6 - Microeconomic foundation of the kinetic exchange models
Published online by Cambridge University Press: 05 May 2013
- Frontmatter
- Contents
- Preface
- 1 Introduction
- 2 Income and wealth distribution data for different countries
- 3 Major socioeconomic modelling
- 4 Market exchanges and scattering process
- 5 Analytic structure of the kinetic exchange market models
- 6 Microeconomic foundation of the kinetic exchange models
- 7 Dynamics: generation of income, inequality and development
- 8 Outlook
- References
- Index
Summary
In the earlier chapters, we introduced kinetic exchange models and discussed the mathematics behind them. However, one major point that is missing in the earlier discussions is the choice behaviour of the agents. The outcomes of the stochastic process do not reflect any optimization mechanism on the part of the agents. In this chapter, we will provide a simple economic model which intends to capture the basic features of the kinetic exchange models. We start with some usual assumptions regarding the preference pattern of the agents and the market mechanism. Eventually, it will be shown that the outcomes are exactly the same as those obtained in the kinetic exchange models, thus providing an elementary (but non-unique) way of interpreting the stochastic money evolution equations in economic terms. After that, we will discuss the dynamic features of the asset distribution in the economy if it has time-varying macroeconomic variables. To be precise, we will discuss a possibility of inequality reversal (as has been postulated and discussed in Kuznets (1955, 1965) and Angle (2010)) in the same framework.
Derivation of the basic kinetic exchange model
Following Chakrabarti and Chakrabarti (2009), we consider an N-agent exchange economy in discrete time. At every point of time, exactly two agents are randomly chosen from the pool of N agents, i.e. each agent has equal probability of being chosen for trade. The exact trading mechanism is described below. After they trade, the agents part and leave the market. In the next period again two agents are chosen for trade and the same process is repeated until the distribution of their assets reaches a steady state.
- Type
- Chapter
- Information
- Econophysics of Income and Wealth Distributions , pp. 150 - 167Publisher: Cambridge University PressPrint publication year: 2013