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On The Motivation and Power of Stochastic Dominance Techniques for Multiple Wellbeing Comparisons

Author

Listed:
  • Gordon Anderson
  • Thierry Post

Abstract

Using the ethical concept of the Veil of Ignorance, social planners would consider well-being problems as decision making under risk, which provides a rationale for using 'Convex Stochastic Dominance' to compare well-being distributions. This approach yields more discriminating power than standard pairwise Stochastic Dominance comparisons in the face of a multitude of distributions from various time sub-periods and/or sub-populations. A Linear Programming test for 'Stochastic Dominance optimality' can be derived from the first principles of utility theory. This test casts new light on the modern history of the US income distribution.

Suggested Citation

  • Gordon Anderson & Thierry Post, 2016. "On The Motivation and Power of Stochastic Dominance Techniques for Multiple Wellbeing Comparisons," Working Papers tecipa-570, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-570
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    More about this item

    Keywords

    Stochastic Dominance; Wellbeing Analysis;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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