Quantification of Trading Advantage in a Kinetic Model of Asset Exchange.
Johnson, Merek G.
- Asset-exchange models (AEMs) are mathematical representations of the movement of wealth within a system of economic agents. In this work, we focused on one particular AEM, the Yard-Sale Model (YSM), in which transactions are pairwise between agents and exchanges are always fractions of the poorer agent's wealth. In recent work, Boghosian derived a Boltzmann equation for the YSM and showed that wit... read moreh a kinetic approach to wealth distributions, the YSM exhibits qualitative agreement with Pareto's Law and may indeed be the first explanation of this macroeconomic observation since it was first proposed nearly a century ago. One of the shortcomings of the YSM is its symmetric trading assumption wherein both agents in a transaction have an equal likelihood of winning. In this work, we reconsidered the YSM in the presence of a trading bias based on the idea that economic agents may have an advantage or disadvantage due to their intrinsic characteristics such as race, gender, etc. We assigned agents within the YSM to have a single valued parameter representing their trading advantage and we derived a pair of coupled Boltzmann equations and the resulting Fokker-Planck equations. We considered the effects of this Bias due to Agent Attributes (BAA) on the kinetics of wealth and the implications this may have on the dynamics of inequality and the relationships between redistribution and trade.read less