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What do normative indices of multidimensional inequality really measure?

  • BOSMANS, Kristof

    ()

    (Department of Economics, Maastricht University, NL-6211 LM Maastricht, The Netherlands)

  • DECANCQ, Koen

    ()

    (Herman Deleeck Centre for Social Policy, University of Antwerp, B-2000 Antwerp, Belgium; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • OOGHE, Erwin

    ()

    (Center for Economic Studies, KU Leuven, B-3000 Leuve, Belgium)

We argue that normative indices of multidimensional inequality do not only measure a distribution’s extent of inequity (i.e., the gaps between the better-off and the worse-off), but also its extent of inefficiency (i.e., the non-realized mutually beneficial exchanges of goods). We provide a decomposition that allows quantifying these two parts of inequality. Exact formulas of the inequity and inefficiency components are provided for a generic class of social welfare functions. The inequity component turns out to be a two-stage measure, which applies a unidimensional inequality measure to the vector of well-being levels. We critically discuss two prominent transfer principles, viz., uniform majorization and correlation increasing majorization, in the light of the decomposition. A decomposition of inequality in human development illustrates the analysis.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013035.

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Date of creation: 09 Jul 2013
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Handle: RePEc:cor:louvco:2013035
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