Inequality Measures as Tests of Fairness in an Economy.

Ravi Kanbur, Stuart Sayer, Andrew Snell

Research output: Working paperDiscussion paper

Abstract

Standard measures of inequality have been criticized for a long
time on the grounds that they are snap shot measures which do not
take into account the process generating the observed distribution.
Rather than focusing on outcomes, it is argued, we should be interested
in whether the underlying process is “fair”. Following this line
of argument, this paper develops statistical tests for fairness within a
well defined income distribution generating process and a well speci-
fied notion of “fairness”. We find that standard test procedures, such
as LR, LM and Wald, lead to test statistics which are closely related
to standard measures of inequality. The answer to the “process versus
outcomes” critique is thus not to stop calculating inequality measures,
but to interpret their values differently–to compare them to critical
values for a test of the null hypothesis of fairness.
Original languageEnglish
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages16
Publication statusPublished - Aug 2007

Publication series

NameESE Discussion Papers
No.174

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