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Correcting the Bias in the Concentration Index when Income is Grouped

  • Philip Clarke
  • Tom Van Ourti

The problem introduced by grouping income data when measuring socioeconomic inequalities in health (and health care) has been highlighted in a recent study. We reexamine this issue and show there is a tendency to underestimate the concentration index at an increasing rate when lowering the number of income categories. This bias results from a form of measurement error and we propose two correction methods. Firstly, the use of instrumental variables (IV) can reduce the error within income categories. Secondly, through a simple formula for correction that is based only on the number of groups. We compare the performance of these methods using data from 15 European countries and the United States. We find that the simple correction formula reduces the impact of grouping and always outperforms the IV approach. Use of this correction can substantially improve comparisons of the concentration index both across countries and across time.

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Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 599.

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Date of creation: Jan 2009
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Handle: RePEc:auu:dpaper:599
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  1. Villasenor, JoseA. & Arnold, Barry C., 1989. "Elliptical Lorenz curves," Journal of Econometrics, Elsevier, vol. 40(2), pages 327-338, February.
  2. Kristina Burström & Magnus Johannesson & Finn Diderichsen, 2005. "Increasing socio-economic inequalities in life expectancy and QALYs in Sweden 1980-1997," Health Economics, John Wiley & Sons, Ltd., vol. 14(8), pages 831-850.
  3. Gerdtham, U. -G. & Johannesson, M. & Lundberg, L. & Isacson, D., 1999. "A note on validating Wagstaff and van Doorslaer's health measure in the analysis of inequalities in health," Journal of Health Economics, Elsevier, vol. 18(1), pages 117-124, January.
  4. Wagstaff, Adam, 2002. "Inequality aversion, health inequalities, and health achievement," Policy Research Working Paper Series 2765, The World Bank.
  5. Teresa Bago d’Uva & Eddy Van Doorslaer & Maarten Lindeboom & Owen O’Donnell & Somnath Chatterji, 2006. "Does reporting heterogeneity bias the measurement of health disparities?," Health, Econometrics and Data Group (HEDG) Working Papers 06/03, HEDG, c/o Department of Economics, University of York.
  6. Doorslaer, Eddy van & Jones, Andrew M., 2003. "Inequalities in self-reported health: validation of a new approach to measurement," Journal of Health Economics, Elsevier, vol. 22(1), pages 61-87, January.
  7. Jens Gundgaard & Jørgen Lauridsen, 2006. "A decomposition of income-related health inequality applied to EQ-5D," The European Journal of Health Economics, Springer, vol. 7(4), pages 231-237, December.
  8. Tomson Ogwang, 2003. "Bounds of the Gini Index Using Sparse Information on Mean Incomes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(3), pages 415-423, 09.
  9. Kakwani, Nanak & Wagstaff, Adam & van Doorslaer, Eddy, 1997. "Socioeconomic inequalities in health: Measurement, computation, and statistical inference," Journal of Econometrics, Elsevier, vol. 77(1), pages 87-103, March.
  10. Wagstaff, Adam & van Doorslaer, Eddy, 2000. "Chapter 34 Equity in health care finance and delivery," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 34, pages 1803-1862 Elsevier.
  11. Chen, Zhuo & Roy, Kakoli, 2009. "Calculating concentration index with repetitive values of indicators of economic welfare," Journal of Health Economics, Elsevier, vol. 28(1), pages 169-175, January.
  12. Tom Van Ourti, 2004. "Measuring horizontal inequity in Belgian health care using a Gaussian random effects two part count data model," Health Economics, John Wiley & Sons, Ltd., vol. 13(7), pages 705-724.
  13. Adam Wagstaff, 2005. "The bounds of the concentration index when the variable of interest is binary, with an application to immunization inequality," Health Economics, John Wiley & Sons, Ltd., vol. 14(4), pages 429-432.
  14. Clarke, Philip M. & Gerdtham, Ulf-G. & Johannesson, Magnus & Bingefors, Kerstin & Smith, Len, 2002. "On the measurement of relative and absolute income-related health inequality," Social Science & Medicine, Elsevier, vol. 55(11), pages 1923-1928, December.
  15. Wagstaff, Adam & van Doorslaer, Eddy & Watanabe, Naoko, 2003. "On decomposing the causes of health sector inequalities with an application to malnutrition inequalities in Vietnam," Journal of Econometrics, Elsevier, vol. 112(1), pages 207-223, January.
  16. Sarabia, J. -M. & Castillo, Enrique & Slottje, Daniel J., 1999. "An ordered family of Lorenz curves," Journal of Econometrics, Elsevier, vol. 91(1), pages 43-60, July.
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