Eur. Phys. J. Special Topics 229, 1661–1673 (2020)
https://doi.org/10.1140/epjst/e2020-900140-9

Regular Article

Occupational arbitrage equilibrium as an entropy maximizing solution

¹ Cornell University, Ithaca, NY, USA
² Columbia University, New York City, NY, USA

^a e-mail: venkat@columbia.edu

Received: 15 July 2019
Received in final form: 26 September 2019
Published online: 7 July 2020

Abstract

A standard critique of attempts to apply entropy-maximizing perspectives to income distribution phenomena in economics is that they do not have appropriate characterizations of individuals making choices, which is at the core of economic modeling. This paper presents a possible bridge between these two seemingly separate universes of discourse. With a specific illustration we show that a conventional model of choice between occupations by individuals can lead to an economic equilibrium which can also be characterized as an outcome which maximizes the entropy of the distribution of individuals across occupations (and hence across incomes). This occupational choice interpretation can provide economic and institutional basis to what has, up to now, often been characterized as somewhat mechanical translation of methods from one discipline to another, without substantive content. The illustrations provided in the paper are a first step in exploring the possible linkages between occupational choice and maximum entropy approaches in modelling income distribution outcomes.