Market exchange rules responsible for wealth concentration

Mar 07, 2012

Two Brazilian physicists have shown that wealth concentration invariably stems from a particular type of market exchange rules – where agents cannot receive more income than their own capital. The authors concluded that maximum inequalities ensue from free markets, which are governed by such seemingly fair rules.

This study, published in European Physical Journal B, was conducted by J. Roberto Iglesias and Rita de Almeida from the Brazilian National Institute of Science and Technology of Complex Systems, based in Porto Alegre. This Brazilian city is famous for hosting the World Social Forum, which is designed to find alternatives to economic liberalism.

To study free market models, the authors used statistical mechanics methods focusing on the dynamic of wealth exchange over time. These methods were inspired by Boltzmann's theory of kinetic energy exchange between gas molecules during collisions. They found that over time, all the available wealth is concentrated among only a few agents. This is represented by a tail-shaped graph that confirms previous studies showing that wealth distribution follows a power law. As a result, the free market is stalled with no subsequent possible exchanges of wealth, even if wealth were distributed evenly from the start.

The authors concluded that regulations for the rules of wealth exchange are necessary to avoid concentration of wealth and stalling of market exchange. For example, systems in which regulations and taxes give the poorest agent a probability of wealth gain of over 50 percent may prevent wealth concentration and decrease inequalities. Also, the possibility of gains exceeding their own capital is crucial to permit a recovery of the poorer agents and to circumvent market stagnancy. Although such models analyse only an incomplete representation of the market and trade, further research could contribute to defining exchange rules that may help avoid future concentration.

Explore further: New filter could advance terahertz data transmission

More information: Iglesias J.R., de Almeida R.M.C. (2012). Entropy and equilibrium state of free market models, European Physical Journal B (EPJ B) DOI 10.1140/epjb/e2012-21036-1

add to favorites email to friend print save as pdf

Related Stories

Inequality, 'silver spoon' effect found in ancient societies

Oct 29, 2009

The so-called "silver spoon" effect -- in which wealth is passed down from one generation to another -- is well established in some of the world's most ancient economies, according to an international study coordinated by ...

Is holiday giving an obligation?

Dec 16, 2008

Why do we suddenly become generous during the holidays? Why do gifts often bear greater symbolic than economic value? Why do we anonymously give to strangers?

Recommended for you

New filter could advance terahertz data transmission

Feb 27, 2015

University of Utah engineers have discovered a new approach for designing filters capable of separating different frequencies in the terahertz spectrum, the next generation of communications bandwidth that ...

The super-resolution revolution

Feb 27, 2015

Cambridge scientists are part of a resolution revolution. Building powerful instruments that shatter the physical limits of optical microscopy, they are beginning to watch molecular processes as they happen, ...

A new X-ray microscope for nanoscale imaging

Feb 27, 2015

Delivering the capability to image nanostructures and chemical reactions down to nanometer resolution requires a new class of x-ray microscope that can perform precision microscopy experiments using ultra-bright ...

Top-precision optical atomic clock starts ticking

Feb 26, 2015

A state-of-the-art optical atomic clock, collaboratively developed by scientists from the University of Warsaw, Jagiellonian University, and Nicolaus Copernicus University, is now "ticking away" at the National ...

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.