The Pareto law of incomes—an explanation and an extension

A stochastic model for the generation of observed income distributions is used to provide an explanation for the Pareto law of incomes. Analysis of the model also yields a prediction of Paretian (power law) behaviour in the lower tail of the distribution and this is shown to occur in a number of empirical distributions. A tractable four-parameter distribution is derived, and shown to fit extremely well to a number of different empirical income distributions.

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Year of publication:	2003
Authors:	Reed, William J.
Published in:	Physica A: Statistical Mechanics and its Applications. - Elsevier, ISSN 0378-4371. - Vol. 319.2003, C, p. 469-486
Publisher:	Elsevier
Subject:	Pareto law \| Income distribution \| GBM \| Mixture model \| Double Pareto-lognormal distribution

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011060077