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Stochastic Dominance and Demographic Policy Evaluation: A Critique

Author

Listed:
  • Juan Carlos CORDOBA

    (Iowa State University)

  • Xiying LIU

    (Economics and Management School of Wuhan University)

Abstract

Stochastic dominance (SD) is commonly used to rank income distributions and assess social policies. The literature argues that SD is a robust criterion for policy evaluation because it requires minimal knowledge of the social welfare function. We argue that, on the contrary, SD is not a robust criterion. We do this by carefully introducing microfoundations into a model by Chu and Koo (1990) who use SD to provide support to family-planning programs aiming at reducing the fertility of the poor. We show that fertility restrictions are generally detrimental for both individual and social welfare in spite of the fact that SD holds. Our findings are an application of the Lucas’ Critique.

Suggested Citation

  • Juan Carlos CORDOBA & Xiying LIU, 2016. "Stochastic Dominance and Demographic Policy Evaluation: A Critique," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 82(1), pages 111-138, March.
  • Handle: RePEc:ctl:louvde:v:82:y:2016:i:1:p:111-138
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    File URL: http://dx.doi.org/10.1017/dem.2016.1
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    Keywords

    Fertility; Children; Welfare; Demographic policies; One child policy; Income distribution; Stochastic dominance;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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