Lost in Translation. Rethinking the Inequality-Equivalence Criteria for Bounded Health Variables
AbstractWhat distributional change of a population's health preserves the level of inequality? In the income inequality literature, the answer lies somewhere between a uniform and a proportional change of the distribution. The polar positions represent the absolute and relative Inequality Equivalence Criteria (IEC), respectively. For a bounded health variable, health may be defined in terms of both attainments and shortfalls. As a distributional change cannot simultaneously be proportional to attainments and to shortfalls, relative inequality measures may rank populations differently for the two perspectives. In contrast to the literature that stresses the importance of measuring inequality in attainments and shortfalls consistently using an absolute IEC, this paper formalizes a new compromise concept for a bounded variable by explicitly considering the two relative IECs, defined with respect to attainments and shortfalls, to represent the polar cases of defensible positions. We further use a surplus-sharing approach to provide new insights on commonly used inequality indices by evaluating the underpinning IECs in terms of how infinitesimal surpluses of health must be successively distributed to preserve the level of inequality. The IECs underpinning the intensively discussed indices suggested by Adam Wagstaff and Guido Erreygers both satisfy our new compromise concept, but the weights assigned to the polar cases vary with the mean health. In contrast, we derive a one-parameter IEC that assigns constant weights independent of the health distribution. That is, the size of the surplus shares distributed according to the two relative sharing rules is constant and equal to a parameter value.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2013:18.
Length: 21 pages
Date of creation: 29 May 2013
Date of revision:
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health inequality; bounded variable; inequality equivalence criteria;
Find related papers by JEL classification:
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-HEA-2013-06-16 (Health Economics)
- NEP-LTV-2013-06-16 (Unemployment, Inequality & Poverty)
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