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Financial accumulation implies ever-increasing wealth inequality

Biondi, Yuri; Olla, Stefano (2020), Financial accumulation implies ever-increasing wealth inequality, Journal of Economic Interaction and Coordination, 15, p. 943–951. 10.1007/s11403-020-00281-7

Type
Article accepté pour publication ou publié
Date
2020
Journal name
Journal of Economic Interaction and Coordination
Volume
15
Publisher
Springer
Pages
943–951
Publication identifier
10.1007/s11403-020-00281-7
Metadata
Show full item record
Author(s)
Biondi, Yuri cc
Institut de Recherche Interdisciplinaire en Sciences Sociales [IRISSO]
Olla, Stefano cc
CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
Abstract (EN)
Wealth inequality is an important matter for economic theory and policy. The recent rise in wealth inequality has been discussed in connection with the recent development of active global financial markets. The existing literature on wealth distribution links wealth inequality to a variety of drivers. Our approach develops a minimalist modelling strategy that combines three featuring mechanisms: active financial markets, individual wealth accumulation and compound interest structure. We provide mathematical proof that accumulated financial investment returns involve ever-increasing wealth concentration and inequality across individual investors most of the time. This cumulative effect over space and time depends on financial accumulation processes, including under efficient financial markets, which generate a fair investment game that individual investors repeatedly play through time.
Subjects / Keywords
Inequality; Economic process; Compound return; Simple return; Minimal institution

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