Four criteria for inequality measurement Suppose that society is composed of n individuals.4 We use the index i to stand for a generic individual; thus, i = 1, 2, . . . , n. An income distribution is a description of how much income yi is received by each individual i: (y1, y2, . .… Continue reading Four criteria for inequality measurement

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## Income distribution arranged by income classes

Income distribution arranged by income classes. (3) Relative income principle. Just as population shares matter and the absolute values of the population itself do not, it is possible to argue that only relative incomes should matter and the absolute levels of these incomes should not. If one income distribution is obtained from another by scaling… Continue reading Income distribution arranged by income classes

## Income distribution by population and income shares

Income distribution by population and income shares. (4) The Dalton principle. We are now in a position to state our final criterion for evaluating inequality. Formulated by Dalton [1920],7 the criterion is fundamental to the construction of measures of inequality. Let (y1, y2, . . . , yn) be an income distribution and consider two… Continue reading Income distribution by population and income shares

## Discussion on the Lorenz curve

he Lorenz curve There is a useful way to see what the four criteria of the previous section give us. Pictures often speak more than words, and in the context of inequality measurement, there is a nice diagrammatic way to depict the distribution of income in any society. The resulting graph is called the Lorenz… Continue reading Discussion on the Lorenz curve

## The Dalton principle and the Lorenz criterion

The Dalton principle and the Lorenz criterion. The converse comparison is true as well: if two Lorenz curves are comparable according to the Lorenz criterion, as in the case of L(1) and L(2) in Figure 6.5, then it must be possible to construct a set of disequalizing transfers leading from L(1) to L(2). We leave… Continue reading The Dalton principle and the Lorenz criterion

## Complete measures of inequality

Complete measures of inequality Lorenz curves provide a pictorial representation of the degree of inequality in a society There are two problems with such a representation. First, policy makers and researchers are often interested in summarizing inequality by a number, something that is more concrete and quantifiable than a picture. Second, when Lorenz curves cross,… Continue reading Complete measures of inequality

## The Lorenz consistency of the Gini coefficient

The Lorenz consistency of the Gini coefficient. The Gini coefficient has pleasing properties. It satisfies all four principles and is therefore Lorenz-consistent, just like the coefficient of variation. Figure 6.9 shows us why the Gini coefficient is consistent with the Lorenz criterion. In this figure, we arrange everybody’s incomes from lowest to highest. Now take… Continue reading The Lorenz consistency of the Gini coefficient

## The theory of inequality measurement

Thus the theory of inequality measurement serves a double role. It tells us the ethical principles that are widely accepted and that we can use to rank different distributions of income or wealth, but it also warns us that such principles are incomplete, so we should not treat the behavior of any one complete measure… Continue reading The theory of inequality measurement

## Inequality and Development Interconnections

Inequality and Development: Interconnections 7.1. Introduction In the introduction to Chapter 6, we argued that our interest in inequality can arise from two broad sources. Equality per se may be of interest to many of us, simply as a goal in itself, but even if we are not interested in the reduction or elimination of… Continue reading Inequality and Development Interconnections