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On the Evaluation of Economic Mobility

  • Peter Gottschalk
  • Enrico Spolare

This paper provides an explicit welfare basis for evaluating economic mobility. Our social welfare function can be seen as a natural dynamic extension of the static social welfare function presented in Atkinson and Bourguignon (1982). Unlike Atkinson and Bourguignon, we use social preferences a la Kreps-Porteus, for which the timing of resolution of uncertainty may matter. Within this generalized framework, we show that welfare evaluation of mobility depends on the interplay between aversion to inequality, risk aversion, and aversion to intertemporal fluctuations. This framework allows us to provide a welfare analysis not only of "reversal" (which has been the focus of much of the literature) but also of "origin independence" (which has not received an explicit welfare foundation in the literature). We use our framework to develop welfare measures of mobility, and apply these measures to intergenerational mobility in the United States using PSID data. We show that the value of origin independence is quantitatively important. We also show that different subpopulations experience different mobility patterns: reversal is more important than origin independence for blacks but the opposite is true for non-blacks.

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2001-25.

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Date of creation: 2001
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Handle: RePEc:bro:econwp:2001-25
Contact details of provider: Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. John Fitzgerald & Peter Gottschalk & Robert Moffitt, 1998. "An Analysis of Sample Attrition in Panel Data: The Michigan Panel Study of income Dynamics," Economics Working Paper Archive 379, The Johns Hopkins University,Department of Economics.
  2. Aaberge, Rolf & Björklund, Anders & Jäntti, Markus & Palme, Mårten & Pedersen, Peder & Smith, Nina & Wennemo, Tom, 1996. "Income Inequality and Income Mobility in the Scandinavian Countries Compared to the United States," SSE/EFI Working Paper Series in Economics and Finance 98, Stockholm School of Economics, revised Aug 2002.
  3. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
  4. Markandya, Anil, 1982. "Intergenerational exchange mobility and economic welfare," European Economic Review, Elsevier, vol. 17(3), pages 307-324.
  5. Lars Peter Hansen & Thomas J. Sargent & Thomas D. Tallarini Jr., 1997. "Robust Permanent Income and Pricing," Levine's Working Paper Archive 596, David K. Levine.
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  8. Flinn, Christopher J, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 611-45, July.
  9. Mervyn A. King, 1980. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," NBER Working Papers 0468, National Bureau of Economic Research, Inc.
  10. Roland Bénabou & Efe A. Ok, 2000. "Mobility as Progressivity: Ranking Income Processes According to Equality of Opportunity," Working Papers 150, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  11. Atkinson, Anthony B & Bourguignon, Francois, 1982. "The Comparison of Multi-Dimensioned Distributions of Economic Status," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 183-201, April.
  12. Alberto Alesina & Rafael Di Tella & Robert MacCulloch, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," Harvard Institute of Economic Research Working Papers 1938, Harvard - Institute of Economic Research.
  13. Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
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  15. Anders Björklund & Markus Jäntti, 2000. "Intergenerational mobility of socio-economic status in comparative perspective," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 26, pages 3-32.
  16. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
  17. Kreps, David M. & Porteus, Evan L., 1979. "Temporal von neumann-morgenstern and induced preferences," Journal of Economic Theory, Elsevier, vol. 20(1), pages 81-109, February.
  18. Kreps, David M & Porteus, Evan L, 1979. "Dynamic Choice Theory and Dynamic Programming," Econometrica, Econometric Society, vol. 47(1), pages 91-100, January.
  19. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
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  21. Dardanoni Valentino, 1993. "Measuring Social Mobility," Journal of Economic Theory, Elsevier, vol. 61(2), pages 372-394, December.
  22. King, Mervyn A, 1983. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," Econometrica, Econometric Society, vol. 51(1), pages 99-115, January.
  23. Peter A. Diamond, 1967. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparison of Utility: Comment," Journal of Political Economy, University of Chicago Press, vol. 75, pages 765.
  24. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
  25. Fields, Gary S. & Ok, Efe A., 1996. "The Meaning and Measurement of Income Mobility," Journal of Economic Theory, Elsevier, vol. 71(2), pages 349-377, November.
  26. Roberts, Kevin W S, 1980. "Interpersonal Comparability and Social Choice Theory," Review of Economic Studies, Wiley Blackwell, vol. 47(2), pages 421-39, January.
  27. Weil, Philippe, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 29-42, February.
  28. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-24, September.
  29. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
  30. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
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