Structural Asset-Price Dynamics from Income Concentration: A Concave-Consumption Framework with Endogenous Financialization

Abstract

This paper develops a structural mechanism through which income concentration generates upward pressure on asset prices while simultaneously weakening aggregate consumption. The framework relies on three minimal assumptions: 1) consumption is concave in income, 2) real investment has a finite absorption capacity, and 3) financial assets are predominantly held by the top income group. When income shifts toward the top, aggregate consumption declines and aggregate savings rise due to declining marginal propensities to consume. The model distinguishes two structural regimes. In Regime I, aggregate savings remain below real-investment absorption capacity, so income concentration affects consumption but does not generate asset-price pressure. In Regime II, savings exceed this capacity, and excess savings are diverted into financial assets with inelastic short-run supply, raising asset prices despite weakening aggregate demand. Because asset ownership is concentrated, valuation gains feed back into the income distribution, reinforcing income concentration through a recurring structural loop. The framework abstracts from credit frictions, expectations, and crisis dynamics, isolating a recurring single-period mechanism that may operate repeatedly across periods. It provides a distributional explanation for asset-price inflation occurring alongside subdued consumption, characterizing asset-price inflation episodes without relying on speculative behavior as a necessary driver. The mechanism is particularly relevant for contemporary economies in which income concentration is reinforced by closed-loop revenue structures and high savings at the top, including those observed in AI-intensive production ecosystems.