Formalization and inevitability of the Pareto principle

Abstract: We formalize and study a generalized form of the Pareto principle or "20/80-rule" as a property of bounded cumulative processes. Modeling such processes by non-negative gain densities, we first show that any such process satisfies a generalized Pareto principle of the form "fraction $p$ of inputs yields fraction $1-p$ of outputs". To obtain a non-trivial and unique characterization, we define the generalized Pareto principle via the decreasing rearrangement of the gain density function. Within this framework, we analyze both constructed gain densities that exemplify the framework and its imposed restrictions, as well as distribution families commonly encountered in datasets, including power-law, exponential, and normal distributions. Finally, we predict commonly encountered ranges for the generalized Pareto principle and discuss the implications of elevating a structural property into a prescriptive role.