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What do normative indices of multidimensional inequality really measure?

Kristof Bosmans, Koen Decancq () and Erwin Ooghe ()
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Erwin Ooghe: Center for Economic Studies, KU Leuven, B-3000 Leuve, Belgium

No 2013035, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We argue that normative indices of multidimensional inequality do not only measure a distribution’s extent of inequity (i.e., the gaps between the better-off and the worse-off), but also its extent of inefficiency (i.e., the non-realized mutually beneficial exchanges of goods). We provide a decomposition that allows quantifying these two parts of inequality. Exact formulas of the inequity and inefficiency components are provided for a generic class of social welfare functions. The inequity component turns out to be a two-stage measure, which applies a unidimensional inequality measure to the vector of well-being levels. We critically discuss two prominent transfer principles, viz., uniform majorization and correlation increasing majorization, in the light of the decomposition. A decomposition of inequality in human development illustrates the analysis.

Keywords: multidimensional inequality measurement; efficiency; uniform majorization; correlation increasing majorization (search for similar items in EconPapers)
JEL-codes: D31 D63 I31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hap and nep-ltv
Date: 2013-07-09
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Journal Article: What do normative indices of multidimensional inequality really measure? (2015) Downloads
Working Paper: What do normative indices of multidimensional inequality really measure? (2015)
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