Wealth Dynamics Research Articles

Self-Fulfilling Prophecies, Quasi Nonergodicity, and Wealth Inequality

We construct a model of an exchange economy in which agents trade assets contingent on an observable signal, the probability of which depends on public opinion. The agents in our model are replaced occasionally, and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi-nonergodic process and that people continue to disagree with each other forever. These disagreements generate large wealth inequalities that arise from the multiplicative nature of wealth dynamics, which makes successful bold bets highly profitable.

Wealth dynamics in a market with information asymmetries.

Financial markets are usually investigated through time series such as prices and volumes that describe the behavior of the system as a whole. Such observables emerge from microeconomic interactions between market participants. Agent-based models have been utilized to shed light on this process. The model's ability to produce statistics frequently found in empirical data is evidence of some correspondence with real markets. Here, an agent-based market model is proposed. Different trader profiles with short- and long-term motivations are considered, and limitations on the agents' skills to manipulate information are inserted into the model. According to their profile and limitations, agents are rational. A differential equationapproximation is employed to find the value to which the price converges and the timescale of this process. The relationship between agents' attributes and the evolution of their wealth is explored in different scenarios. Agent's average wealth was not significantly affected by information processing accuracy, but the standard deviation was. The increased risk is the main consequence of low accuracy. The model yielded price series with multifractal behavior and heavy-tailed return distributions, which are nontrivial statistics frequently observed in empirical series.

Job Ladder and Wealth Dynamics in General Equilibrium

Job Ladder and Wealth Dynamics in General Equilibrium

Job Ladder and Wealth Dynamics in General Equilibrium

Job Ladder and Wealth Dynamics in General Equilibrium

Job Ladder and Wealth Dynamics in General Equilibrium

Job Ladder and Wealth Dynamics in General Equilibrium

Anthony Giddens and civilizational analysis: modernity between reflexivity and culture

Based on the critical reconstruction of the diagnosis of modernity by A. Giddens, the article traces the logic of the transition from the institutional to the civilizational approach in the sociological discourse of “modernity”. The analysis focuses on the problem of the relationship between culture and reflexivity. In Giddens’ theory of radical modernity, reflexivity is opposed to culture, which is identified with tradition. According to the theory of multiple modernities that are genetically related to the sociological paradigm of civilizational analysis, tradition and reflexivity are correlated as two aspects of culture characterized by aspirations, on the one hand, to the reproduction of interpretive foundations that set a general context of meaning, and, on the other, to trans-contextual breakthroughs that open up new horizons of meaning. Both tendencies are in irreparable tension between themselves and are mediated in the capacity of culture to rationalization, during which the self-articulation of culture turns into its self-problematization. The combination of rationality with reflexivity leads to cultural innovation and interpretative shifts and, at least, potentially to new cultural crystallizations, allowing higher levels of self-problematization (J. P. Arnason). In different cultural and historical patterns, the ability to rationalize receives an uneven and specific development. Modernity is a “distinct civilization” (S. N. Eisenstadt), in which the tendencies of culture towards self-articulation in conflicting directions and towards self-problematization reach a level unprecedented in human history, giving rise to multiple configurations of social life intertwined with relatively autonomous dynamics of power and wealth. Although Giddens did not make a “civilizational turn” in his work, his institutional analysis of modernity closed with his formulating the problem of conjugation of culture and power, which is key for the civilizational approach in sociology. However, the same problematic also marked the limit of understanding modernity in Giddens’ theory; he recognized the incomprehensibility of the social world in which reflexivity was institutionalized. His further path was a one of utopian modeling and political implementation of the future post-modern world, rather than a one of scientific analysis of modernity.

Rapid Dynamics of Top Wealth Shares and Self-Made Fortunes: What Is the Role of Family Firms?

We derive an analytical link between the fast dynamics of inequality at the top of the wealth distribution and the prevalence of newly created fortunes. Specifically, in the context of a random growth model of wealth accumulation, the shape of the top of the wealth distribution changes rapidly only if the pace with which new fortunes are created is fast. Quantitatively, the decision of a few families to bear a large amount of idiosyncratic risk in the form of family firms is crucial in accounting for both the prevalence of new fortunes and the dynamics of top wealth inequality. (JEL D22, D31, G32, L25)

Wealth inequality dynamics in europe and the united states: Understanding the determinants

This paper studies the interaction between the long-term dynamics of aggregate household wealth and the wealth distribution in Europe and the United States. We do so by building the first Distributional Wealth Accounts for Europe, including households’ assets, liabilities, investment flows, and the wealth distribution for most European countries from 1970–2020. We find that although aggregate household wealth to income ratios have followed a similar increasing pattern in both Europe and the United States since 1970, wealth concentration has increased much faster in the United States. Using wealth accumulation decompositions and counterfactual simulations, we show that the weaker rise in labor income inequality and the stronger rise in house prices relative to financial assets in Europe versus the United States appear to explain why Europe has experienced a more moderate rise in wealth concentration since the mid-1980s.

Green transition, investment horizon, and dynamic portfolio decisions

This paper analyzes the implications of investors’ short-term oriented asset holding and portfolio decisions (or short-termism), and its consequences on green investments. We adopt a dynamic portfolio model, which contrary to conventional static mean-variance models, allows us to study optimal portfolios for different decision horizons. Our baseline model contains two assets, one asset with fluctuating returns and another asset with a constant risk-free return. The asset with fluctuating returns can arise from fossil-fuel based sectors or from clean energy related sectors. We consider different drivers of short-termism: the discount rate, the nature of discounting (exponential vs. hyperbolic), and the decision horizon of investors itself. We study first the implications of these determinants of short-termism on the portfolio wealth dynamics of the baseline model. We find that portfolio wealth declines faster with a higher discount rate, with hyperbolic discounting, and with shorter decision horizon. We extend our model to include a portfolio of two assets with fluctuating returns. For both model variants, we explore the cases where innovation efforts are spent on fossil fuel or clean energy sources. Detailing dynamic portfolio decisions in such a way may allow us for better pathways to empirical tests and may provide guidance to some online financial decision making.

Technology Heterogeneity and Poverty Traps: A Latent Class Approach to Technology Gap Drivers of Chronic Poverty

The analysis of household wealth dynamic remains an important methodology in the identification of poverty traps. To overcome measurement issues in survey data, livelihoods-based approaches of the dynamics of poverty are typically examined using panel regressions of a livelihoods regression on household assets and other socio-economic factors over time. In this paper, we characterise the livelihoods regression as a ‘livelihoods technology’, and use a latent class-technology approach to account for heterogeneity in how households generate a livelihood. We use a detailed dataset from rural India covering 213 households across 2001–2014, and control for selection issues through a Heckman Selection model. Our results are the first in the wealth dynamics literature to show that substantial heterogeneity exists in the technologies with which households generate their livelihoods. Importantly, we show that accounting for heterogeneity in household livelihoods ‘technologies’ more readily identifies different equilibria in wealth levels and provides previously foregone information on who is poor and why they remain poor.

A study of UK household wealth through empirical analysis and a non-linear Kesten process.

We study the wealth distribution of UK households through a detailed analysis of data from wealth surveys and rich lists, and propose a non-linear Kesten process to model the dynamics of household wealth. The main features of our model are that we focus on wealth growth and disregard exchange, and that the rate of return on wealth is increasing with wealth. The linear case with wealth-independent return rate has been well studied, leading to a log-normal wealth distribution in the long time limit which is essentially independent of initial conditions. We find through theoretical analysis and simulations that the non-linearity in our model leads to more realistic power-law tails, and can explain an apparent two-tailed structure in the empirical wealth distribution of the UK and other countries. Other realistic features of our model include an increase in inequality over time, and a stronger dependence on initial conditions compared to linear models.

Wealth Dynamics in Communities

Abstract This article develops a model to explore how favour exchange influences wealth dynamics. We identify a key obstacle to wealth accumulation: wealth crowds out favour exchange. Therefore, households must choose between growing their wealth and accessing favour exchange. We show that low-wealth households rely on favour exchange at the cost of having tightly limited long-term wealth. As a result, initial wealth disparities persist and can even grow worse. We then explore how communities and policymakers can overcome this obstacle. Using simulations, we show that community benefits and place-based policies can stimulate both saving and favour exchange, and in some cases, can even transform favour exchange into a force that accelerates wealth accumulation.

Law and Technology in the US Law School Industry

Abstract Law schools are increasingly pressured to rethink the character of next generation research, policy impact and curricular training in the wake of computer-oriented technologies. For all its heralded importance and the proliferation of markets and talk around the topic of law and technology within the law school industry, there are still no systematic scholarly attempts to understand how these dynamics currently play out in practice for law schools, what such an investigation might tell us about the present and future composition of legal academia, or how one might begin in the first place to even identify, gather and make sense of data toward these ends. The purpose of this paper is two-fold: on the one hand, to analyse the methodological and theoretical challenges involved in this sort of blended empirical/qualitative study that might be applied to similar studies in any global context, and on the other hand, to draw out a clearer picture of the dynamics of organizational change in US law schools in relation to the phenomena of digital technologies – and all too often underexplored, to unpack some of the dynamics of culture, profession and wealth at play. In more vernacular terms, our aim here is to get a better sense of how and what we talk about when we talk about law and technology as legal academics.

The Racial Wealth Gap and the Role of Firm Ownership

This paper develops an overlapping generations model that isolates the impact of the US racial wealth gap in 1962 on the long-run dynamics of wealth. The model predicts that one component of the initial gap, firm ownership, coupled with the intergenerational transfer of that ownership results in a permanent wealth gap independent of other dimensions of inequality. This implies that even if all discrimination against Black Americans had ceased upon the end of Jim Crow, the wealth gap would have persisted without a reparations policy addressing the fact that the initial firm ownership gap arose in the first place.

Spatial Organization and Socio-Economic Differentiation at the Dhar Tichitt Center of Dakhlet el Atrouss I (Southeastern Mauritania)

The emergence of socio-political differentiation is a core theme in world prehistory, and the West African archaeological record offers unique insights into the range of pathways towards increasing complexity and the origins of socio-economic inequalities. During the second half of the second millennium BC, the Tichitt-Oualata escarpments of southeastern Mauritania witnessed the development of societies with monumental funerary architecture and substantial drystone settlements that relied on an agropastoral economy based primarily on pearl millet (Pennisetum sp.) cultivation and livestock-raising. Previous spatial analyses of site size have shown that the Dhar Tichitt landscape exhibited a multi-tiered settlement hierarchy, with Dakhlet el Atrouss I (80 ha) as the main regional center, with almost 600 compounds forming an intricate layout and hundreds of funerary tumuli in the vicinity of the site. The limited presence of imported prestige goods, however, has sparked considerable controversy regarding the socio-political complexity of the community inhabiting the site. The aim of this article is to understand whether remote sensing and spatial analyses can inform us about the extent of socio-economic differentiation at Dakhlet el Atrouss I, the largest site ascribed to the Tichitt Tradition. On the basis of relevant ethnographies exploring the dynamics of household wealth in agropastoral economies, I explore the degree of compound size variation at the site and neighborhood levels using well-established econometric methods that increasingly feature in archaeological studies of inequality and socio-political complexity. This paper represents the first application of Lorenz Curves and Gini Coefficients in African prehistory and illustrates a considerable degree of spatial and socio-economic differentiation at Dakhlet el Atrouss I.

Cather Studies 13: Willa Cather's Pittsburgh

Joining the prestigious Cather Studies series, Willa Cather's Pittsburgh provides valuable information and insights on what is probably the least known period in the author's life and career, her years in Pittsburgh from 1896 to 1906. Editors Tim Bintrim, James Jaap, and Kimberly Vanderlaan brought particular expertise to bear on the subject, and the result is a highly useful and thought-provoking collection.Ann Romines’ prologue, “Becoming ‘Miss Cather from Pittsburgh,” opens with the question “What happened to Willa Cather in Pittsburgh?” Her answer incorporates several related strands: a “constant note” of homesickness, the satisfactions of personal freedom and a career, and persistent pondering of “what it means to be caught between two homes.” The well-positioned first essay, Daryl W. Palmer's “Bicycles and Freedom in Red Cloud and Pittsburgh: Willa Cather's Early Transformations of Place and Gender in ‘Tommy, the Unsentimental,’” follows smoothly from this tone-setting prologue.Veteran readers may at first wonder why Cather's bicycling and “Tommy the Unsentimental” need further comment. If so, Palmer's excellent background information on the bicycle as social phenomenon and its connection with Pittsburgh will be a pleasant surprise, as will his strong, nuanced reading of the story itself, which he sees being centered on female independence. Less persuasive is a secondary argument that Cather saw parallels between Red Cloud and Pittsburgh.Three strong threads running through the volume are the industrial nature of the Pittsburgh Cather experienced; a widening disparity of social classes; and Cather's network of friends and acquaintances whose presence is felt in her work. We also see her as a teacher, a student of languages, and a translator. Diane Prenatt's “Willa Cather as Translator: The Pittsburgh ‘French Soirées’” goes beyond the literal meaning of the word to argue effectively that “translation functions as a narrative strategy, as a plot device, and as enduring evidence of the deep meaning Willa Cather found in a language, a literature, and a culture not her own.”Inevitably, in a book of assorted essays some will be more impressive than others. Perhaps inevitably, readers will differ on which are which. For me, the two brightest stars here are Joseph C. Murphy's “Venetian Window: Pittsburgh Glass and Modernist Community in ‘Double Birthday’” and Charmion Gustke's “Big Steel and Class Consciousness in ‘Paul's Case.’” Murphy's essay is a model of how research and interpretation can work together. I am particularly struck by his astute demonstration that the “central Venetian window” in this under-appreciated story “serves as an entryway to Cather's depiction of modernist consciousness and community” and that remembrance of the house and its window “becomes a metonym” for the irrecoverable pre-war world. Gustke provides an equally impressive essay on “the dynamics of wealth and social mobility” and a fresh reading of ironies arising from clashes between the two in a frequently appreciated story. I particularly applaud Gustke's use of Cather's 1901 article “The Real Homestead” (the Homestead of the violent labor strike in 1892) to demonstrate her awareness of Pittsburgh's “inequitable distribution of wealth” and the effects of brutal working conditions.A pair of essays on Cather's writings about Chinese immigrants by Michael Gorman and Tim Bintrim are mutually reinforcing. In “The Boxer Rebellion, Pittsburgh's Missionary Crisis, and ‘The Conversion of Sum Loo,’” Bintrim argues that Cather developed an “opposition to Christian missionaries proselytizing the Chinese . . . during her teen years.” Firmly linking this idea to the Pittsburgh years, he sees it as being “not a revolt against Christianity but against Western imperialism.” Gorman in “Where Pagodas Rise on Every Hill: Romance as Resistance in ‘A Son of the Celestial,’” concedes that the early story's “racialized portraits and preposterous diction” are “abhorrent” but sees it as an important “anticipation” of “later—and more accomplished—works” and evidence that she resisted the “anti-Chinese politics common in the American West” (and in the nation as a whole, as demonstrated by the Chinese Exclusion Act of 1882, referred to in the story). Ian Haney Lépez's White by Law (1996) can provide valuable background on the xenophobia Gorman emphasizes.Unfortunately, some of the essays in Willa Cather's Pittsburgh are only scantily linked to the title subject, notably John Murphy's epilogue. Implausible “stretches” in readings detract from some pieces, among them the late Angela Conrad's “Cather's Pittsburgh and the Alchemy of Social Class.” Conrad does, however, valuably pull together the volume's thread of social class. It may seem trivial to point out that lapses of copyediting crop up here and there. These do, after all, affect the reading experience. Strong scholarship such as that prevailingly exhibited here deserves the most scrupulous presentation.

Ergodicity breaking in wealth dynamics: The case of reallocating geometric Brownian motion.

A growing body of empirical evidence suggests that the dynamics of wealth within a population tends to be nonergodic, even after rescaling the individual wealth with the population average. Despite these discoveries, the way in which nonergodicity manifests itself in models of economic interactions remains an open issue. Here we shed valuable insight on these properties by studying the nonergodicity of the population average wealth in a simple model for wealth dynamics in a growing and reallocating economy called reallocating geometric Brownian motion (RGBM). When the effective wealth reallocation in the economy is from the poor to the rich, the model allows for the existence of negative wealth within the population. In this work, we show that in the negative reallocation regime of RGBM, ergodicity breaks as the difference between the time-average and the ensemble growth rate of the average wealth in the population. In particular, the ensemble average wealth grows exponentially, whereas the time-average growth rate is nonexistent. Moreover, we find that the system is characterized with a critical self-averaging time period. Before this time period, the ensemble average is a fair approximation for the population average wealth. Afterwards, the nonergodicity forces the population average to oscillate between positive and negative values since the magnitude of this observable is determined by the most extreme wealth values in the population. This implies that the dynamics of the population average is an unstable phenomenon in a nonergodic economy. We use this result to argue that one should be cautious when interpreting economic well-being measures that are based on the population average wealth in nonergodic economies.

Smooth Ambiguity, Wealth Dynamics and Asset Prices with Heterogeneous Beliefs

Smooth Ambiguity, Wealth Dynamics and Asset Prices with Heterogeneous Beliefs

Wealth mobility in the United States: 1860–1870

AbstractWe offer new evidence on the dynamics of wealth holding in the United States over the Civil War decade based on a hand-linked random sample of wealth holders drawn from the 1860 census. Despite the wealth shock caused by emancipation, we find that patterns of wealth mobility were broadly similar for northern and southern residents in 1860. Looking at the determinants of individual wealth holding in 1870, we find that the elasticity with respect to 1860 wealth was quite low in both regions – consistent with high levels of wealth mobility.

A continuous heterogeneous-agent model for the co-evolution of asset price and wealth distribution in financial market

The heterogeneous agent model (HAM) is a powerful tool to study the stock price dynamics and stylized anomalies in financial markets, such as the volatility clustering and long-range dependence of stock returns. The existing HAMs often require the perfect arbitrage condition and relatively strong behavioral assumptions on agents’ expectation formation, which are not sufficient to capture the complexity in real finance market. To fill the theoretical gap, we propose a novel continuous version of HAM that relies on weaker assumptions, in which heterogeneous agents are identified continuously by their wealth and the ex-post price expectations no matter how they are formed. Given the non-parametric distribution on the continuous agent space and the bounded arbitrage condition, we establish the joint evolution equations for stock price and wealth distribution. Within the family of mixed-exponential distributions, we derive an explicit expression for the equations and prove that the evolution equation of wealth distribution has the fascinating splitting-mixing property. An endogenous generating mechanism for agent types arises naturally from the splitting-mixing property, which links the continuous HAM to the classical HAMs with finite agent types. By numerical simulation, we show that the wealth dynamics tends to positively associate the weight of each generated agent type with their averaged investment performance, while the price dynamics experiences the period-doubling bifurcation and chaotic bifurcation. By introducing random shocks into the continuous HAM, we fit the resulting return series via a GARCH model. Based on the significance of the fitted GARCH parameters, a wide range of model parameters are identified by which the continuous HAM can simultaneously generate volatility clustering, long-range dependence and other stylized anomalies in financial markets.