Compensating justice beats leaky buckets : an experimental investigation
Leaky-bucket transactions can be regarded as income transfers allowing for transaction costs. In its most rudimentary form, leaky-bucket transactions trace out the maximum ?leakage? of transaction costs before income inequality is exacerbated, or before a welfare loss is experienced. This notion suggests that part of the income transfer should reach the transferee in order to keep the degree of income inequality or social welfare intact. However, in general, this conjecture is theoretically wrong. Rather there exists a unique benchmark such that it holds only for transfers among income recipients below the benchmark. When both are above the benchmark, 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. These three cases cover progressive transfers only. Three more cases apply to regressive transfers, and six more cases apply to income gains. Each of these twelve cases is covered by the present paper.Yet experimental research for three families of renowned income inequality measures and their associated social welfare functions shows poor empirical evidence. Subjects? perceptions to maintain the degree of income inequality rather follow a simple precept: If someone gains income, the other person involved should be positively compensated, and if someone loses income, the other person involved should be negatively compensated. This expresses sort of compensating justice rather than restoration of the former degree of income inequality, or of the former level of social welfare. It requires different axioms of inequality measurement to comply with subjects? perceptions.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
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.:
- 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
- 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 147-56, February.
- Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
- 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.
- Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
- 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.
- Yaari, Menahem E., 1988. "A controversial proposal concerning inequality measurement," Journal of Economic Theory, Elsevier, vol. 44(2), pages 381-397, April.
- Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October.
- Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
- Amiel, Yoram & Creedy, John & Hurn, Stan, 1999. " Measuring Attitudes towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
- 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.
- Peter J. Lambert & Giuseppe Lanza, 2003. "The effect on inequality of changing one or two incomes," IFS Working Papers W03/15, Institute for Fiscal Studies.
- Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre.
- 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 567-79, June.
- WEYMARK, John A., .
"Generalized Gini inequality indices,"
CORE Discussion Papers RP
-453, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cowell, Frank A, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 521-31, April.
- 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.
- Christian Seidl, 2001. "Inequality measurement and the leaky-bucket paradox," Economics Bulletin, AccessEcon, vol. 4(6), pages 1-7.
- Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:zbw:cauewp:2989. 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.