Ranking Intersecting Lorenz Curves

Rolf Aaberge ()

No 3852, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: This paper is concerned with the problem of ranking Lorenz curves in situations where the Lorenz curves intersect and no unambiguous ranking can be attained without introducing weaker ranking criteria than first-degree Lorenz dominance. To deal with such situations two alternative sequences of nested dominance criteria between Lorenz curves are introduced. At the limit the systems of dominance criteria appear to depend solely on the income share of either the worst-off or the best-off income recipient. This result suggests two alternative strategies for increasing the number of Lorenz curves that can be strictly ordered; one that places more emphasis on changes that occur in the lower part of the income distribution and the other that places more emphasis on changes that occur in the upper part of the income distribution. Both strategies turn out to depart from the Gini coefficient; one requires higher degree of downside and the other higher degree of upside inequality aversion than what is exhibited by the Gini coefficient. Furthermore, it is demonstrated that the sequences of dominance criteria characterize two separate systems of nested subfamilies of inequality measures and thus provide a method for identifying the least restrictive social preferences required to reach an unambiguous ranking of a given set of Lorenz curves. Moreover, it is demonstrated that the introduction of successively more general transfer principles than the Pigou-Dalton principle of transfers forms a helpful basis for judging the normative significance of higher degrees of Lorenz dominance. The dominance results for Lorenz curves do also apply to generalized Lorenz curves and thus provide convenient characterizations of the corresponding social welfare orderings.

Keywords: generalized Gini families of inequality measures; rank-dependent measures of inequality; Gini coefficient; partial orderings; Lorenz dominance; Lorenz curve; general principles of transfers (search for similar items in EconPapers)
JEL-codes: D31 D63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ltv
Date: 2008-11
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Forthcoming in: Social Choice and Welfare

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Related works:
Working Paper: Ranking intersectiong Lorenz Curves (2000)
Working Paper: Ranking Intersecting Lorenz Curves (2004)
Working Paper: Ranking Intersecting Lorenz Curves (2000)
Journal Article: Ranking intersecting Lorenz curves (2009)
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