@article{Hauner_2021, title={Wealth Inequality, Network Topology and Financial Instability}, volume={28}, url={https://jid.journals.yorku.ca/index.php/jid/article/view/40445}, DOI={10.25071/1874-6322.40445}, abstractNote={<p>This paper asks if two, otherwise identical, economies were distinguished only by their distributions of wealth, are they equally stable in response to a random shock? A theoretical financial network model is proposed to understand the relationship between wealth inequality and financial crises. In a financial network, financial assets link individual asset and liability holders to form a web of economic connections. The total connectivity of an individual is described by their degree, and the overall distribution of connections in the network is imposed through a degree distribution--equivalent to the wealth distribution as incoming connections represent assets and outgoing connections liabilities. A networkâ€™s topology varies with the level of wealth inequality and total wealth and together, simulations show, they determine network contagion in the event of a random negative income shock to some individual. Random network simulations, whereby each financial connection is randomly placed, reveal that increasing wealth inequality makes a wealthy network less stable--as measured by the share of individuals failing financially or the decline in financial asset values. These results suggest a unique architectural role for accumulated assets and their distribution in macro-financial stability.</p>}, number={3-4}, journal={Journal of Income DistributionÂ®}, author={Hauner, Thomas}, year={2021}, month={Dec.} }