Method in which total output and wealth are distributed in an economy
In economics, distribution is the way total output, income, or wealth is distributed among individuals or among the factors of production (such as labour, land, and capital). In general theory and in for example the U.S. National Income and Product Accounts, each unit of output corresponds to a unit of income. One use of national accounts is for classifying factor incomes and measuring their respective shares, as in national Income. But, where focus is on income of persons or households, adjustments to the national accounts or other data sources are frequently used. Here, interest is often on the fraction of income going to the top (or bottom) x percent of households, the next x percent, and so forth (defined by equally spaced cut points, say quintiles), and on the factors that might affect them (globalization, tax policy, technology, etc.).
Descriptive, theoretical, scientific, and welfare uses
Income distribution can describe a prospectively observable element of an economy. It has been used as an input for testing theories explaining the distribution of income, for example human capital theory and the theory of economic discrimination (Becker, 1993, 1971).
In neoclassical economics, the supply and demand of each factor of production interact in factor markets to determine equilibrium output, income, and the income distribution.
Factor demand in turn incorporates the marginal-productivity relationship of that factor in the output market. Analysis applies to not only capital and land but the distribution of income in labor markets.
^George J. Stigler (1941). Production and Distribution Theories: The Formative Years (analytical exposition of successive contributions by ten neoclassical economists from about 1870 to 1910). New York: Macmillan. Chapter-preview links.
^C.E. Ferguson (1969). The Neoclassical Theory of Production and Distribution. Cambridge. Description & review excerpt.
Sheldon Danziger, Robert Haveman, Robert Plotnick (1981). "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature 19(3), pp. 975-1028.