Limiting risk to reduce inequality: insights from the Yard-Sale model

Abstract

Wealth inequality remains a critical socioeconomic challenge, driven by systemic dynamics and self-reinforcing mechanisms that amplify the economic imbalances. Simplified models from statistical physics provide valuable insights into the fundamental mechanisms governing wealth distribution. In this study, we extend the Yard-Sale model -- a minimal kinetic exchange framework -- to investigate how limiting risk in economic transactions affects inequality. While previous research demonstrates that such models naturally lead to wealth concentration, we introduce a mechanism that restricts the maximum risk agents can assume during exchanges. Numerical simulations reveal that this modification fosters more equitable wealth distributions and significantly reduces extreme disparities. These findings highlight the importance of individual-level constraints in shaping systemic outcomes, offering new perspectives on promoting economic balance.

References in corpus (3)

• The unfair consequences of equal opportunities: comparing exchange models of wealth distribution
• Optimal risk in wealth exchange models: agent dynamics from a microscopic perspective
• Kinetic Models of Wealth Distribution Having Extreme Inequality: Numerical Study of Their Stability Against Random Exchanges

Cited by in corpus (1)

• Wealth Inequality in Agent-Based Economies: The Dominant Role of Social Protection over Growth