5 - Poverty, Inequality and Development Flashcards Preview

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Flashcards in 5 - Poverty, Inequality and Development Deck (11):

Inequality measure

Rule which assigns degree of inequality to each income distribution


How do we describe an income distribution?

•n individuals, income of the ith individual = Yi, i=1,2,3, n
• Income distribution I, describes how much income Yi received by individual I
• I (Y1,Y2,Y3 Yn)


Anonymity Principle

- It doesn't matter who receives the income
- unimportant whether person A receives X and B receives Y or vice versa

- Therefore can always rank income distribution such that Y1≤Y2 ≤ Y3 ≤ Yn)
- can rank from poorest to richest
- without losing valuable information


Relative Income Principle

Income levels in themselves are not important

Not absolute but rather relative incomes that matter

Shortfalls in absolute income rather addressed when studying poverty measurement


Dalton principle

If one income distribution can be achieved from another by constructing a series of regressive transfers, then the former distribution MUST be more unequal than the latter


For every income distribution I(Y1,Y2,Y3 Yn) and every transfer t>0

I(Y1, ,Yi, ,Yj, ,Yn)


Population principle

The size of the population is irrelevant
- If double the population, relative inequality remains the same


Lorenz Curve

Perfect equality - % of income = % population


Lorenz Criterion:

If Lorenz curve lies at every point to the RHS of the Lorenz curve of some other distribution, the former is more unequal than the latter


Inequality measure consistent with the Lorenz criterion ONLY if:

simultaneously satisfies 4 principles

Incorporates anonymity, population and relative principles because curve drops all information on income and population in magnitudes and retains only population shares


Mean Absolute Deviation (M):

Accounts for entire income distribution