What do normative indices of multidimensional inequality really measure?
AbstractWe argue that normative indices of multidimensional inequality do not only measure a distribution’s extent of inequity (i.e., the gaps between the better-off and the worse-off), but also its extent of inefficiency (i.e., the non-realized mutually beneficial exchanges of goods). We provide a decomposition that allows quantifying these two parts of inequality. Exact formulas of the inequity and inefficiency components are provided for a generic class of social welfare functions. The inequity component turns out to be a two-stage measure, which applies a unidimensional inequality measure to the vector of well-being levels. We critically discuss two prominent transfer principles, viz., uniform majorization and correlation increasing majorization, in the light of the decomposition. A decomposition of inequality in human development illustrates the analysis.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013035.
Date of creation: 09 Jul 2013
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multidimensional inequality measurement; efficiency; uniform majorization; correlation increasing majorization;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-26 (All new papers)
- NEP-HAP-2013-09-26 (Economics of Happiness)
- NEP-LTV-2013-09-26 (Unemployment, Inequality & Poverty)
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