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On comparing heterogeneous populations: Is there really a conflict between the Pareto criterion and inequality aversion?

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  • Capeau, B
  • Ooghe, Erwin

Abstract

The incompatibility between the Pareto indifference criterion and a concern for greater equality in living standards of heterogenous populations (see, amongst others, Ebert, 1995, 1997, Ebert and Moyes, 2003 and Shorrocks, 1995) might come as a surprise, since both principles are reconcilable when people differ only in income (homogenous population). We present two families of welfare rankings --(i) single parameter extensions of the generalized Lorenz dominance rule and (ii) a subset of Weymark's (1981) generalized Ginis-- and show how and why these rules resolve the paradox.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/121548.

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Date of creation: 2004
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Handle: RePEc:ner:leuven:urn:hdl:123456789/121548

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Web page: http://www.kuleuven.be

Related research

Keywords: Heterogeneity; Welfare comparisons;

References

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  1. Weymark, John A., 1981. "Generalized gini inequality indices," Mathematical Social Sciences, Elsevier, vol. 1(4), pages 409-430, August.
  2. Udo Ebert & Patrick Moyes, 2003. "Equivalence Scales Reconsidered," Econometrica, Econometric Society, vol. 71(1), pages 319-343, January.
  3. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
  4. Ebert, Udo, 1995. "Income inequality and differences in household size," Mathematical Social Sciences, Elsevier, vol. 30(1), pages 37-55, August.
  5. Hammond, Peter J., 1975. "A note on extreme inequality aversion," Journal of Economic Theory, Elsevier, vol. 11(3), pages 465-467, December.
  6. 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.
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Cited by:
  1. Bart Capéau & Erwin Ooghe, 2004. "On the reconciliation of efficiency and inequality aversion with heterogeneous populations: characterization results," Public Economics Working Paper Series wpeiahp, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
  2. Decoster, André & Ooghe, Erwin, 2005. "A bounded index test for robust heterogeneous welfare comparisons," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/119318, Katholieke Universiteit Leuven.

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