Efficiency-based measures of inequality

How should we make value judgments about wealth inequality? Harsanyi (1953) proposes that an individual evaluate wealth possibilities through expected utility under Rawl’s (1971) “veil of ignorance” assuming wealth levels are assigned uniformly. We propose an alternative notion of how wealth levels...

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Bibliographic Details
Published in:Journal of mathematical economics 2019-12, Vol.85, p.60-69
Main Authors: Andonie, Costel, Kuzmics, Christoph, Rogers, Brian W.
Format: Article
Language:English
Subjects:
Axioms
Contests
Economic inequality
Evaluation
Expected utility
Game theory
Ignorance
Income inequality
Inequality
Judgments
Market value
Mathematical analysis
Utilitarianism
Wealth
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Summary:How should we make value judgments about wealth inequality? Harsanyi (1953) proposes that an individual evaluate wealth possibilities through expected utility under Rawl’s (1971) “veil of ignorance” assuming wealth levels are assigned uniformly. We propose an alternative notion of how wealth levels are assigned, based on a contest. Inequality can be captured through the equilibrium properties of such a game. We connect these inequality measures to existing measures, demonstrating the conditions under which they satisfy the received key axioms of inequality measures (anonymity, homogeneity and the Pigou–Dalton principle), and how they can evaluate a tradeoff between greater total wealth and greater inequality.
ISSN:0304-4068
1873-1538
DOI:10.1016/j.jmateco.2019.09.002