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Inequality Indices as Tests of Fairness

Author

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  • Ravi Kanbur
  • Andy Snell

Abstract

Inequality indices are traditionally interpreted as measures of deviations from equality. This article interprets them instead as statistical tests for a null of fairness within well-defined income generating processes. We find that the likelihood ratio (LR) test for fairness versus unfairness within two such processes are proportional to Theil’s first and second inequality indices respectively. The LR values may be used either as a test statistic or to approximate a Bayes factor that measures the posterior probabilities of the fair version of the processes over that of the unfair. We also apply this perspective to measurement of inequality of opportunity.

Suggested Citation

  • Ravi Kanbur & Andy Snell, 2019. "Inequality Indices as Tests of Fairness," The Economic Journal, Royal Economic Society, vol. 129(621), pages 2216-2239.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:621:p:2216-2239.
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    File URL: http://hdl.handle.net/10.1111/ecoj.12637
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    Cited by:

    1. Hansen, Kristian S. & Moreno-Ternero, Juan D. & Østerdal, Lars P., 2023. "Productivity and quality-adjusted life years: QALYs, PALYs and beyond," Working Papers 11-2023, Copenhagen Business School, Department of Economics.
    2. Kanbur, Ravi, 2024. "Shannon-Theil-Rawls: Information Theory, Inequality and the Veil of Ignorance," CEPR Discussion Papers 18864, C.E.P.R. Discussion Papers.
    3. Seungwoo Han, 2022. "Identifying the roots of inequality of opportunity in South Korea by application of algorithmic approaches," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 9(1), pages 1-10, December.
    4. Ji-Won Park & Chae Un Kim, 2020. "Getting to a feasible income equality," Papers 2011.09119, arXiv.org, revised Mar 2021.
    5. Ji-Won Park & Chae Un Kim, 2021. "Getting to a feasible income equality," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-16, March.
    6. Ji-Won Park & Jaeup U. Kim & Cheol-Min Ghim & Chae Un Kim, 2021. "The Boltzmann fair division for distributive justice," Papers 2109.11917, arXiv.org, revised Nov 2021.

    More about this item

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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