Stochastic dominance and decomposable measures of inequality and poverty

Buhong Zheng

Journal of Public Economic Theory, 2021, vol. 23, issue 2, 228-247

Abstract: In this paper, we characterize some new links between stochastic dominance and the measurement of inequality and poverty. We show that: for second‐degree normalized stochastic dominance (NSD), the weighted area between the NSD curve of a distribution and that of the equalized distribution is a decomposable inequality measure; for first‐degree and second‐degree censored stochastic dominance (CSD), the weighted area between the CSD curve of a distribution and that of the zero‐poverty distribution is a decomposable poverty measure. These characterizations provide graphical representations for decomposable inequality and poverty measures in the same manner as Lorenz curve does for the Gini index. The extensions of the links to higher degrees of stochastic dominance are also investigated.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:23:y:2021:i:2:p:228-247

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