PhD defence: Accounting for Wealth Concentration

On Friday 14 February 2025 at 12 am., Simon Toussaint will defend his PhD thesis Accounting for Wealth Concentration.

Wealth shows up in just about all major economic decisions in life, and is very unevenly distributed. About one-fifth of all households have zero or negative net worth, while some households are millionaires or even billionaires. There are also very different types of wealth: some households only have a bank account and are home owners, others have shares and are business owners. Why is the distribution of wealth so skewed and how has this changed over time? Are there differences between countries and how can we explain these? How do you even measure wealth? It is these kinds of questions that Simon Toussaint tries to answer in his dissertation. 

Wealth concentration in the Netherlands

Toussaint reconstructs, among other things, (the distribution of) household wealth in the Netherlands from 1854 onwards. Wealth concentration was high at the end of the 19th century, fell after World War II, and rises again from the 1980s onwards. The Dutch colonial past contributed significantly to the high degree of pre-war concentration of wealth, while post-war growth is mainly determined by home ownership and the growth of the pension system.

A better model for wealth distribution

The dominant theoretical framework with which wealth is usually studied is the Pareto distribution. Pareto assumes a distribution in fixed percentages, in which most assets (e.g. 80%) are in the hands of a small group (20%), and within that 20% a distribution of 80-20 according to the size of that wealth applies. The implication of this is that a lot of wealth is concentrated in the richest people, and that is not reflected in the data. In reality, for example, there are far fewer people with 100 billion than you would expect according to the Pareto distribution.

A simple alternative, the so-called Weibull distribution, works better theoretically and also explains the differences between countries in the number of billionaires, according to Toussaint's research. The Weibull distribution is less based on fixed proportions. The difference in wealth between people does not decrease gradually, but exponentially.

The role of market conditions

But why is it that there are so many billionaires in China, for example, and relatively few in India? The super-rich are usually entrepreneurs, and according to Toussaint, important factors for the size of their wealth are the size of the population (read: size of the market), local and global market conditions. These factors, combined with the statistical Weibull model, together provide an explanation for what we see in society in terms of wealth concentration. So it's not just that there are more billionaires in China because the Chinese population is so large, but there are more people in China who own 10 billion or 100 billion. There are more super-billionaires, because there is a relationship between wealth and the market.

The value of unlisted companies

The wealth of the wealthiest households in the Netherlands is largely reflected in the substantial interest they have in a company (more than five percent). For the most part, these are non-listed companies (BVs).

A good example of this is supermarket chain Jumbo, and the family that owns that company. The book value of this company is known, and determined in accordance with accounting standards. But the book value does not equal the value the firm would sell for – its market value. From an economic point of view, the market value is important to know. But because the company is not traded on the stock exchange, unlike Ahold (owner of supermarket chain Albert Heijn, among others), it is difficult for researchers and policymakers to make a comparison.

Toussaint has developed a method to estimate such market values, and that yields clearly higher values than the booking value. In this case, proper measurement reveals proper insights, because the market value of unlisted companies causes large increases in wealth inequality and the total household wealth.

Knowledge as a basis for social significance

Wealth influences, for example, the development of the housing market, the pension system, equality of opportunity and the differences between rich and poor worldwide. It affects the macroeconomic stories we tell. That is why it is important that Toussaint's dissertation provides an answer to how you can systematically map out assets and make them transparent.

Simon Toussaint is a PhD student at the Utrecht University School of Economics (U.S.E.).