Averaging Lorenz curves
AbstractA large number of functional forms has been suggested in the literature for estimating Lorenz curves that describe the relationship between income and population shares. The traditional way of overcoming functional-form uncertainty when estimating a Lorenz curve is to choose the function that best fits the data in some sense. In this paper we describe an alternative approach for accommodating functional-form uncertainty, namely, how to use Bayesian model averaging to average the alternative functional forms. In this averaging process, the different Lorenz curves are weighted by their posterior probabilities of being correct. Unlike a strategy of picking the best-fitting function, Bayesian model averaging gives posterior standard deviations that reflect the functional-form uncertainty. Building on our earlier work (Chotikapanich and Griffiths, 2002), we construct likelihood functions using the Dirichlet distribution and estimate a number of Lorenz functions for Australian income units. Prior information is formulated in terms of the Gini coefficient and the income shares of the poorest 10% and poorest 90% of the population. Posterior density functions for these quantities are derived for each Lorenz function and are averaged over all the Lorenz functions. Copyright Springer 2005
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Bibliographic InfoArticle provided by Springer in its journal The Journal of Economic Inequality.
Volume (Year): 3 (2005)
Issue (Month): 1 (April)
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Web page: http://springerlink.metapress.com/link.asp?id=111137
Gini coefficient; Bayesian inference; Dirichlet distribution;
Other versions of this item:
- Duangkamon Chotikapanich & William E. Griffiths, 2003. "Averaging Lorenz Curves," Monash Econometrics and Business Statistics Working Papers 22/03, Monash University, Department of Econometrics and Business Statistics.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
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