Pareto distribution

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A continuous distribution of the formf(x) = βαβ//(xβ+1)for α < x < ∞ and α > 0, β > 0. It is commonly used to model the distribution of wealth across individuals; in this case β is called the Pareto index and is inversely related to the Gini coefficient,

f(x) = βαβ//(xβ+1)

G = 1/(2β − 1),

so that the smaller values of β correspond to a more unequal distribution. The Pareto distribution has a finite mean if β > 1 and a finite variance if β > 2.

Subjects: Probability and Statistics — Economics.

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