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

1

## Inequality measure

### Rule which assigns degree of inequality to each income distribution

2

## How do we describe an income distribution?

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•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)

3

## Anonymity Principle

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- 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

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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

5

## 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

6

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

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

7

## Population principle

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The size of the population is irrelevant

- If double the population, relative inequality remains the same

8

## Lorenz Curve

### Perfect equality - % of income = % population

9

## 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

10

## Inequality measure consistent with the Lorenz criterion ONLY if:

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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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