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On the welfare loss caused by inequality of opportunity

  • Aitor Calo Blanco

    ()

    (Dpto. de Analisis Económico y Admon. de Empresas, Universidad de La Coruña)

  • J. Ignacio García Pérez

    ()

    (Department of Economics, Universidad Pablo de Olavide)

Based on the ethical principle of equality of opportunity, this paper presents a measure of the welfare loss that is caused by an unfair distribution of a particular outcome (income, health, education, etc). The key idea is that a fair society should produce outcomes that depend on individuals’ effort and not on their external circumstances such as gender, socioeconomic background, etc. We propose measuring inequality of opportunity as the welfare loss attributed to the outcome differences among individuals who exert a similar level of effort. Our results are in line with those aspects of fairness literature that give priority to the ex post compensation approach to equality of opportunity. Finally, we present an empirical application for the measurement of the welfare loss in the income distribution in Europe. We have observed a high degree of heterogeneity among European countries. The welfare loss due to inequality of opportunity ranges in those, from basically zero to almost one fifth of their potential welfare.

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File URL: http://www.upo.es/serv/bib/wps/econ1212.pdf
File Function: First version, 2012
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Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 12.12.

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Length: 30 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:pab:wpaper:12.12
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  1. Aaberge, Rolf & Mogstad, Magne & Peragine, Vito, 2011. "Measuring long-term inequality of opportunity," Journal of Public Economics, Elsevier, vol. 95(3-4), pages 193-204, April.
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  10. Victor R. Fuchs, 1975. "A Note on Sex Segregation in Professional Occupations," NBER Chapters, in: Explorations in Economic Research, Volume 2, number 1, pages 105-111 National Bureau of Economic Research, Inc.
  11. RAMOS, Xavier & VAN DE GAER, Dirk, 2012. "Empirical approaches to inequality of opportunity: principles, measures, and evidence," CORE Discussion Papers 2012026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  24. Pierre Cahuc & Yann Algan, 2009. "Civic Virtue and Labor Market Institutions," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 111-45, January.
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