An article by Lisa Zyga on Phys.org reports on a study that found and documented an important connection between network quality and income distribution.

The question of how an economic system should be structured in order to best promote fairness and equality is one of the most debated subjects of all time. By approaching the complexities of this question from the field of network science, researchers from MIT and other institutions have found that the average degree to which individuals in a society are connected to each other can crucially affect the fairness of income distribution.

In their study, the researchers constructed a model in which individuals can earn income in two ways: by producing content or by distributing the content produced by others. A system in which more income is earned by production than by distribution is labeled as meritocratic, while one in which more income is earned by distribution is called topocratic. Importantly, the income earned by distribution depends not on what an individual produces but rather on an individual’s position in the network.

Using this simple model, the researchers showed that the connectivity of the network determines whether the income is earned in a meritocratic or topocratic manner: densely connected networks are more meritocratic, while sparsely connected networks are more topocratic.

The model predicts that the internet, by giving individuals the ability to market directly to each other (or through one large mediator such as iTunes, Amazon, or eBay), is playing an important role in increasing the meritocracy of society by reducing the long chain of intermediations that define poorly connected societies. From this perspective, the internet seems to be promoting the fairness of income distribution in society.

Does the internet promote fairness of income distribution?

If you would like to read the original paper as published in Nature – Scientific Reports, here is a link to it.

To Each According to its Degree: The Meritocracy and Topocracy of Embedded Markets

J. Borondo, F. Borondo, C. Rodriguez-Sickert & C. A. Hidalgo

A system is said to be meritocratic if the compensation and power available to individuals is determined by their abilities and merits. A system is topocratic if the compensation and power available to an individual is determined primarily by her position in a network. Here we introduce a model that is perfectly meritocratic for fully connected networks but that becomes topocratic for sparse networks-like the ones in society. In the model, individuals produce and sell content, but also distribute the content produced by others when they belong to the shortest path connecting a buyer and a seller. The production and distribution of content defines two channels of compensation: a meritocratic channel, where individuals are compensated for the content they produce, and a topocratic channel, where individual compensation is based on the number of shortest paths that go through them in the network. We solve the model analytically and show that the distribution of payoffs is meritocratic only if the average degree of the nodes is larger than a root of the total number of nodes. We conclude that, in the light of this model, the sparsity and structure of networks represents a fundamental constraint to the meritocracy of societies.