Pareto index

In economics the Pareto index, named after the Italian economist and sociologist Vilfredo Pareto, is a measure of the breadth of income distribution. It is one of the parameters specifying a Pareto distribution and embodies the Pareto principle, which was an observation that 20% of the members of Italian society owned 80% of the wealth.

Related Topics:
Economics - Vilfredo Pareto - Pareto distribution - Pareto principle

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One of the simplest characterizations of the Pareto distribution, when used to model the distribution of wealth, says that the proportion of the population whose wealth exceeds any positive number x > xm is

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:left(rac{x_mathrm{m}}{x} ight)^lpha

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where xm is the wealth of the poorest people (the subscript m stands for minimum). The Pareto index is the parameter α. The larger the Pareto index, the smaller the proportion of very wealthy people.

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