5 - Poverty, Inequality and Development Flashcards Preview

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Flashcards in 5 - Poverty, Inequality and Development Deck (11):
1

Inequality measure

Rule which assigns degree of inequality to each income distribution

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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)

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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

4

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

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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

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

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

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Population principle

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

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Lorenz Curve

Perfect equality - % of income = % population

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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

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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

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Mean Absolute Deviation (M):

Accounts for entire income distribution