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Inequality and welfare evaluation of heterogeneous income distributions

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Author Info
Anthony Shorrocks
Abstract

This paper establishes the principles that should govern the welfare and inequality analysis of heterogeneous income distributions. Two basic criteria – the ‘equity preference’ condition and the ‘compensation principle’ – are shown to be fundamentally incompatible. The paper favours the latter, thereby vindicating the traditional method of dealing with heterogeneous samples. However, inequality and welfare comparisons will usually be well defined only if equivalent incomes are obtained using constant scale factors; and researchers will need to distinguish clearly between inequality of nominal incomes and inequality of living standards. Furthermore, household observations must always be weighted according to family size. Copyright Kluwer Academic Publishers 2004

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File URL: http://hdl.handle.net/10.1007/s10888-004-3459-8
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Publisher Info
Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 2 (2004)
Issue (Month): 3 (July)
Pages: 193-218
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Handle: RePEc:kap:jecinq:v:2:y:2004:i:3:p:193-218

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Web page: http://springerlink.metapress.com/link.asp?id=111137

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Related research
Keywords: income distributions; inequality; living standards; needs;

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References listed on IDEAS
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  1. Glewwe, Paul, 1991. "Household equivalence scales and the measurement of inequality : Transfers from the poor to the rich could decrease inequality," Journal of Public Economics, Elsevier, vol. 44(2), pages 211-216, March. [Downloadable!] (restricted)
  2. Fleurbaey, Marc & Hagnere, Cyrille & Trannoy, Alain, 2003. "Welfare comparisons with bounded equivalence scales," Journal of Economic Theory, Elsevier, vol. 110(2), pages 309-336, June. [Downloadable!] (restricted)
    Other versions:
  3. Atkinson, Anthony B & Bourguignon, Francois, 1982. "The Comparison of Multi-Dimensioned Distributions of Economic Status," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 183-201, April. [Downloadable!] (restricted)
  4. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Differences in Needs and Assessment of Income Distributions," Bulletin of Economic Research, Blackwell Publishing, vol. 44(2), pages 77-124, April.
  5. Lewbel, Arthur, 1989. "Household equivalence scales and welfare comparisons," Journal of Public Economics, Elsevier, vol. 39(3), pages 377-391, August. [Downloadable!] (restricted)
  6. Kolm, Serge-Christophe, 1977. "Multidimensional Egalitarianisms," The Quarterly Journal of Economics, MIT Press, vol. 91(1), pages 1-13, February. [Downloadable!] (restricted)
  7. Udo Ebert & Patrick Moyes, 2003. "Equivalence Scales Reconsidered," Econometrica, Econometric Society, vol. 71(1), pages 319-343, January. [Downloadable!] (restricted)
  8. Danziger, Sheldon & Taussig, Michael K, 1979. "The Income Unit and the Anatomy of Income Distribution," Review of Income and Wealth, Blackwell Publishing, vol. 25(4), pages 365-75, December.
  9. Blackorby, C. & Donaldson, D., 1991. "Adult-Equivalence Scales and the Economic Implementation of Interpersonal Comparisons of Well-Being," UBC Departmental Archives 91-08, UBC Department of Economics.
  10. Jenkins, Stephen P & Lambert, Peter J, 1993. "Ranking Income Distributions When Needs Differ," Review of Income and Wealth, Blackwell Publishing, vol. 39(4), pages 337-56, December.
  11. Trannoy, Alain, 2003. "About the right weights of the social welfare function when needs differ," Economics Letters, Elsevier, vol. 81(3), pages 383-387, December. [Downloadable!] (restricted)
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  12. Nelson, Julie A, 1993. "Household Equivalence Scales: Theory versus Policy?," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 471-93, July. [Downloadable!] (restricted)
  13. Pendakur, Krishna, 1998. "Semiparametric estimates and tests of base-independent equivalence scales," Journal of Econometrics, Elsevier, vol. 88(1), pages 1-40, November. [Downloadable!] (restricted)
  14. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February. [Downloadable!] (restricted)
  15. Ebert, Udo, 1997. "Social Welfare When Needs Differ: An Axiomatic Approach," Economica, London School of Economics and Political Science, vol. 64(254), pages 233-44, May. [Downloadable!] (restricted)
  16. Roberts, Kevin W S, 1980. "Interpersonal Comparability and Social Choice Theory," Review of Economic Studies, Blackwell Publishing, vol. 47(2), pages 421-39, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Udo Ebert, 2007. "Ethical inequality measures and the redistribution of income when needs differ," Journal of Economic Inequality, Springer, vol. 5(3), pages 263-278, December. [Downloadable!] (restricted)
  2. John Creedy & Catherine Sleeman, 2005. "Adult Equivalence Scales, Inequality and Poverty," Department of Economics - Working Papers Series 938, The University of Melbourne. [Downloadable!]
  3. Luis José Imedio Olmedo & Encarnación Macarena Parrado Gallardo & María Dolores Sarrión Gavilán, 2005. "Horizontal equity, equal progression: an utilitarian approach," Hacienda Pública Española, IEF, vol. 174(3), pages 87-115, September. [Downloadable!]
  4. Erwin Ooghe & Peter J. Lambert, 2005. "On Bounded Dominance Criteria," University of Oregon Economics Department Working Papers 2005-6, University of Oregon Economics Department, revised 01 May 2005. [Downloadable!]
    Other versions:
  5. John Creedy & Ross Guest, 2007. "Discounting and the Time Preference Rate: An Introduction," Department of Economics - Working Papers Series 993, The University of Melbourne. [Downloadable!]
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