Inequality measurement for bounded variables
Associate Professor, Suman Seth, Economics Department of the Leeds University Business School
External Seminars New Research Seminar Series Seminars
Thursday, 19 October 2023, 1.30pm to 2.30pm
Date and time: Thursday 19 October 2023, 13:30 hours (1.30 pm UK BST)
Location: L1 Main Meeting Room, Richard Doll Building, Old Road Campus, Headington, OX3 7LF
To Join: This is a free event, which will be taking place both in-person and online via Zoom/Microsoft Teams. Register
Abstract: We propose a novel approach for assessing inequality for variables that have fixed lower- and upper bounds. Inequality assessment with such variables is different from inequality assessment with variables lacking fixed upper bounds (such as income) because their respective most unequal distributions are fundamentally different. The maximum-inequality distributions of non-bounded variables, for respective means, always feature every element, but one, equal to their lower bounds, and many existing inequality measures rank these most unequal distributions equally. However, due to domain restrictions, the most unequal distributions of bounded variables contain different proportions of elements being equal to the lower bound, for respective means, and traditional inequality measures rank these most unequal distributions differently. We normatively justify a novel axiom requiring maximum-inequality distributions of bounded variables to be ranked equally, irrespective of their means. Our axiomatically characterised indices measure inequality as the observed proportion of the maximum attainable inequality for a given mean. Furthermore, we characterise a subset of measures that additionally yield consistent inequality comparisons when switching between attainment and shortfall representations of the bounded variable. We illustrate the empirical relevance of our approach with cross-country inter-temporal comparisons of health inequality. A starkly different picture emerges when traditional inequality indices give way to our approach.
Bio: Suman Seth is an associate professor at the Economics Department of the Leeds University Business School. He is also a Research Associate at the Oxford Poverty and Human Development Initiative (OPHI) at the University of Oxford. He is a Development Economist with a particular research interest on measurement methodologies of well-being, inequality and poverty and their policy-oriented applications. Previously, he has served as consultants at the United Nations Development Programme (UNDP), World Bank, and Asian Development Bank. He has co-authored a book on income poverty measurement with the World Bank and a book titled Multidimensional Poverty Measurement and Analysis with OPHI published by the Oxford University Press.