Leaky bucket Paradoxes in income inequality perceptions: an experimental investigation
Leaky?bucket transactions can be regarded as a generalization of the transfer principle allowing for transaction costs. In its most rudimentary form, leaky?bucket transactions trace out the maximum leakage of transaction costs such that a transfer still pays at the margin. Yet ?to pay at the margin? bears at least two different connotations: It could refer to the minimum transactions costs before a welfare loss is experienced, or before income inequality is exacerbated. These two aspects have not always be made explicit in earlier work. This notion suggests that a smaller, but positive amount of income has to reach the transferee in order to keep the degree of income inequality or the aggregate social welfare at the same level. However, this conjecture is theoretically wrong for the degree of income inequality, and partly wrong for aggregate social welfare. Rather there exists a unique benchmark such that the above holds only for transfers among income recipients below the benchmark. When they are both above the benchmark, then the transferee has to be given more than the amount taken from the transferor, and when they are on opposite sides of the benchmark, both should experience an income loss. Notice that these three cases cover only progressive transfers. Three more cases apply to regressive transfers, and six more cases apply to income donations. Each of these twelve cases ordains different theoretical results. Yet experimental research, calibrated against the Atkinson, generalized Gini, and entropy income inequality measures and their associated social welfare functions, shows that this generalized theory of the transfer principle is as poorly evidenced as is the plain transfer principle. This applies both to the income?inequality approach and to the social?welfare approach. At most one third of the subjects behave sometimes according to theory. The rest seems to follow some notion of compensating justice: If someone loses (gains) income, the other person involved should be negatively (positively) compensated to maintain the alleged degree of income inequality. This behavioral pattern is, however, at variance with theory.
|Date of creation:||2004|
|Contact details of provider:|| Postal: D-24098 Kiel,Wilhelm-Seelig-Platz 1|
Phone: 0431-880 3282
Fax: 0431-880 3150
Web page: http://www.vwl.uni-kiel.de/en
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
- Peter Lambert, & Giuseppe Lanza, 2003. "The effect on inequality of changing one or two incomes," IFS Working Papers W03/15, Institute for Fiscal Studies.
- Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
- Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre.
- Frank A. Cowell, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 521-531.
- Dagum, Camilo, 1990. "On the relationship between income inequality measures and social welfare functions," Journal of Econometrics, Elsevier, vol. 43(1-2), pages 91-102.
- Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
- Amiel, Yoram & Cowell, Frank A., 1992. "Measurement of income inequality : Experimental test by questionnaire," Journal of Public Economics, Elsevier, vol. 47(1), pages 3-26, February.
- Chakravarty, Satya R, 1988. "Extended Gini Indices of Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 147-156, February.
- Champernowne, D G, 1974. "A Comparison of Measures of Inequality of Income Distribution," Economic Journal, Royal Economic Society, vol. 84(336), pages 787-816, December.
- Cowell, F A, 1985. "'A Fair Suck of the Sauce Bottle' or What Do You Mean by Inequality?," The Economic Record, The Economic Society of Australia, vol. 61(173), pages 567-579, June.
- Cowell, F.A., 2000.
"Measurement of inequality,"
Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166
- Cowell, Frank, 1998. "Measurement of inequality," LSE Research Online Documents on Economics 2084, London School of Economics and Political Science, LSE Library.
- Weymark, John A., 1981. "Generalized gini inequality indices," Mathematical Social Sciences, Elsevier, vol. 1(4), pages 409-430, August.
- WEYMARK, John A., "undated". "Generalized Gini inequality indices," CORE Discussion Papers RP 453, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Christian Seidl, 2001. "Inequality measurement and the leaky-bucket paradox," Economics Bulletin, AccessEcon, vol. 4(6), pages 1-7.
- Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
- Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, vol. 18(1), pages 59-80, June.
- Amiel, Yoram & Creedy, John & Hurn, Stan, 1999. " Measuring Attitudes towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
- Harrison, Elizabeth & Seidl, Christian, 1994. "Perceptional Inequality and Preferential Judgements: An Empirical Examination of Distributional Axioms," Public Choice, Springer, vol. 79(1-2), pages 61-81, April.
- Michele Bernasconi, 2002. "How should income be divided? questionnaire evidence from the theory of “Impartial preferences”," Journal of Economics, Springer, vol. 9(1), pages 163-195, December.
- Yaari, Menahem E., 1988. "A controversial proposal concerning inequality measurement," Journal of Economic Theory, Elsevier, vol. 44(2), pages 381-397, April. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:zbw:cauewp:1771. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.