Entropy, directionality theory and the evolution of income inequality

Authors: Fabrizio Germano

Journal of Economic Behavior and Organization, Vol. 198, 15-43, June, 2022

A macro-evolutionary theory of income inequality is proposed that is based on a society's dynamic income generating process. Two types of processes are distinguished, namely dispersing and concentrating ones. A basic result shows that dispersing processes provide a selective advantage for more balanced and mutualistic interaction; whereas concentrating ones favor weaker, less balanced and less mutualistic interaction. We also show that societies with more balanced and mutualistic interaction induce more income equality and a non-stratified society, while less balanced and less mutualistic ones induce more inequality and a possibly stratified society. Also, more equal societies are more resilient in the sense of being quicker to recover from shocks and return to steady state than less equal ones. Stylized examples of pre-modern and modern societies are briefly discussed.