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Upward and Downward Bias When Measuring Inequality of Opportunity

Author

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  • Brunori, Paolo

    () (University of Bari)

  • Peragine, Vito

    () (University of Bari)

  • Serlenga, Laura

    () (University of Bari)

Abstract

Estimates of the level of inequality of opportunity have traditionally been interpreted as lower bounds due to the downward bias resulting from the partial observability of circumstances that affect individual outcome. We show that such estimates may also suffer from upward bias as a consequence of sampling variance. The magnitude of the latter distortion depends on both the empirical strategy used and the observed sample. We suggest that, although neglected in empirical contributions, the upward bias may be significant and challenge the interpretation of inequality of opportunity estimates as lower bounds. We propose a simple criterion to select the best specification that balances the two sources of bias. Our method is based on cross-validation and can easily be implemented with survey data.To show how this method can improve the reliability of inequality of opportunity measurement, we provide an empirical illustration based on income data from 31 European countries. Our evidence shows that estimates of inequality of opportunity are sensitive to model selection. Alternative specifications lead to significant differences in the absolute level of inequality of opportunity and to the re-ranking of a number of countries. This confirms the need for an objective criterion to select the best econometric model when measuring inequality of opportunity.

Suggested Citation

  • Brunori, Paolo & Peragine, Vito & Serlenga, Laura, 2018. "Upward and Downward Bias When Measuring Inequality of Opportunity," IZA Discussion Papers 11405, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11405
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    References listed on IDEAS

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    1. Hufe, Paul & Peichl, Andreas, 2015. "Lower Bounds and the Linearity Assumption in Parametric Estimations of Inequality of Opportunity," IZA Discussion Papers 9605, Institute for the Study of Labor (IZA).
    2. Balcázar, Carlos Felipe, 2015. "Lower bounds on inequality of opportunity and measurement error," Economics Letters, Elsevier, vol. 137(C), pages 102-105.
    3. Judith Niehues & Andreas Peichl, 2014. "Upper bounds of inequality of opportunity: theory and evidence for Germany and the US," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 73-99, June.
    4. Paolo Brunori & Flaviana Palmisano & Vito Peragine, 2015. "Inequality of Opportunity in Sub-Saharan Africa," SERIES 08-2015, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Dec 2015.
    5. Anders Björklund & Markus Jäntti & John Roemer, 2012. "Equality of opportunity and the distribution of long-run income in Sweden," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(2), pages 675-696, July.
    6. Francisco H. G. Ferreira & Jérémie Gignoux, 2011. "The Measurement Of Inequality Of Opportunity: Theory And An Application To Latin America," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(4), pages 622-657, December.
    7. Francisco H.G. Ferreira & Jérémie Gignoux, 2011. "The Measurement of Inequality of Inequality of Opportunity: Theory and an Application to Latin America," Post-Print halshs-00754503, HAL.
    8. Brunori, Paolo & Ferreira, Francisco H. G. & Peragine, Vito, 2013. "Inequality of opportunity, income inequality and economic mobility : some international comparisons," Policy Research Working Paper Series 6304, The World Bank.
    9. Paolo Li Donni & Juan Rodríguez & Pedro Rosa Dias, 2015. "Empirical definition of social types in the analysis of inequality of opportunity: a latent classes approach," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 44(3), pages 673-701, March.
    10. Gustavo A. Marrero & Juan Gabriel Rodríguez, 2012. "Inequality of Opportunity in Europe," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(4), pages 597-621, December.
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    Cited by:

    1. Xavier Ramos Dirk Van de gaer & Dirk Van de gaer, 2017. "Is inequality of opportunity robust to the measurement approach?," Working Papers 450, ECINEQ, Society for the Study of Economic Inequality.

    More about this item

    Keywords

    inequality of opportunity; model selection; cross-validation; variance-bias trade-off;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D3 - Microeconomics - - Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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