Entrepreneurs, Chance, and the Deterministic Concentration of Wealth

While there are many factors that coalesce to determine an individual's wealth it is more often than not assumed that chance is irrelevant. Any good luck should be cancelled by bad luck, or is unimportant on the aggregate of all individuals. Here is a study which models an economy of complete chance Entrepreneurs, Chance, and the Deterministic Concentration of Wealth.

       Abstract:
"In many economies, wealth is strikingly concentrated. Entrepreneurs–individuals with ownership in for-profit enterprises–comprise a large portion of the wealthiest individuals, and their behavior may help explain patterns in the national distribution of wealth. Entrepreneurs are less diversified and more heavily invested in their own companies than is commonly assumed in economic models. We present an intentionally simplified individual-based model of wealth generation among entrepreneurs to assess the role of chance and determinism in the distribution of wealth. We demonstrate that chance alone, combined with the deterministic effects of compounding returns, can lead to unlimited concentration of wealth, such that the percentage of all wealth owned by a few entrepreneurs eventually approaches 100%. Specifically, concentration of wealth results when the rate of return on investment varies by entrepreneur and by time. This result is robust to inclusion of realities such as differing skill among entrepreneurs. The most likely overall growth rate of the economy decreases as businesses become less diverse, suggesting that high concentrations of wealth may adversely affect a country's economic growth. We show that a tax on large inherited fortunes, applied to a small portion of the most fortunate in the population, can efficiently arrest the concentration of wealth at intermediate levels."

        While there are obviously more factors to the economy than chance (I would particularly include the effects of income inequalities, poverty and low social mobility on motivation etc.) this study demonstrates the compounding effect of wealth even in the absence of real skill. So while nowhere near a real model of an economy it does serve a useless purpose. I am interested in your thoughts blogosphere!