Unit‐Consistent Decomposable Inequality Measures

Buhong Zheng

Economica, 2007, vol. 74, issue 293, 97-111

Abstract: This paper introduces a new axiom—the unit consistency axiom—into inequality measurement. This new axiom requires the ordinal inequality rankings (rather than the cardinal indices) to be unaffected when incomes are expressed in different units. I argue that unit consistency is an indispensable axiom for the measurement of income inequality. When unit consistency is combined with decomposability, I show that the unit‐consistent decomposable class of inequality measures is a two‐parameter extension of the one‐parameter generalized entropy class. The extended class accommodates a variety of value judgments and includes different types of inequality measures.

Date: 2007
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