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A model of income distribution

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  • Pestieau, Pierre
  • Possen, Uri M.

Abstract

The paper presents a model of income distribution that makes use of Gibrat's law of proportionate effect to explain the way income is distributed and how the distribution changes over time in a population made of families characterized by a specific life cycle and initial endowment. The stochastic factor in each period is shown to be the result of deliberate choices by individual decision-makers regarding their savings, investment, and bequests given their inherited wealth and natural ability. The source of randomness is two-fold: uncertainty about the rates of return and randomness of the distribution of natural skills.

Suggested Citation

  • Pestieau, Pierre & Possen, Uri M., 1982. "A model of income distribution," European Economic Review, Elsevier, vol. 17(3), pages 279-294.
    • Handle: RePEc:eee:eecrev:v:17:y:1982:i:3:p:279-294
    DOI: 10.1016/S0014-2921(82)80064-0
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    References listed on IDEAS

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    1. Pestieau, Pierre & Possen, Uri M, 1979. "A Model of Wealth Distribution," Econometrica, Econometric Society, vol. 47(3), pages 761-772, May.
    2. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
    3. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
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