Attitudes to Inequality and Poverty Frank Cowell June 2001
Some Basic Questions • Where do ideas about inequality and poverty comparisons come from? • How are they related to other distributional concepts? • Are there systematic differences in attitudes amongst groups of the population?
Theoretical Approaches • Ad hoc measures of inequality and poverty • Social welfare approaches • Axiomatic approaches
Outline of present approach • Focus on specific issues of the inequality or poverty map. • Encapsulate them in a series of questions • Ask people… Example. Let’s look at the core of inequality analysis, which is also used in modern approaches to poverty comparisons
Pigou’s Approach to Income Inequality P R Increasing Inequality $ 0 1 2 3 4 5 6 7 8 9 10 R P $ 0 1 2 3 4 5 6 7 8 9 10 P R $ 0 1 2 3 4 5 6 7 8 9 10 R P $ 10 0 1 2 3 4 5 6 7 8 9
Pigou’s Approach: Limitations • Comparability of incomes • Absence of History • Restriction to two persons
Dalton’s Approach • The Principle of Transfers is often referred to as the “Pigou-Dalton” condition • This is a bit misleading • Hugh Dalton strengthened the Pigou idea considerably (Econ Journal 1920) • This was to give a neat form for the n -person economy • It formed the basis of all the modern work on Distributional Analysis, including Social Welfare and Poverty But do you think it’s reasonable? You do? Perhaps think again…
Dalton’s Approach
Which group seems to have the more unequal distribution? $ 0 1 2 3 4 5 6 7 8 9 10 11 12 13 $ 0 1 2 3 4 5 6 7 8 9 10 11 12 13
The “Wrong” Answer? $ 0 1 2 3 4 5 6 7 8 9 10 11 12 13 $ 0 1 2 3 4 5 6 7 8 9 10 11 12 13
The “Truth”? $ 0 1 2 3 4 5 6 7 8 9 10 11 12 13 $ 0 1 2 3 4 5 6 7 8 9 10 11 12 13
Issues to be Investigated • What form of inequality comparisons do people commonly make? • Do they have the same structure as risk comparisons? • What about social welfare? •The Atkinson analogy •The Atkinson analogy •Rothschild-Stiglitz •Rothschild-Stiglitz •The Harsanyi paradigm •The Harsanyi paradigm
Outline of Approach • Questionnaire responses of international group of over 1100 students • Questionnaire experiments were run during 1998 • Each session run during lecture/class time • Questionnaire consisted of a combination of (related) numerical problems and a verbal question • Although the experiment was anonymous individuals were asked about personal characteristics
The Questionnaire INEQUALITY QUESTIONNAIRE RISK QUESTIONNAIRE This questionnaire concerns people's attitude to inequality. We would be interested in your This questionnaire concerns people's attitude to risk. We would be interested in your view, view, based on hypothetical situations. Because it is about attitudes there are no "right" based on hypothetical situations. Because it is about attitudes there are no "right" answers. answers. Some of the possible answers correspond to assumptions consciously made by Some of the possible answers correspond to assumptions consciously made by economists: but economists: but these assumptions may not be good ones. Your responses will help to shed these assumptions may not be good ones. Your responses will help to shed some light on this, some light on this, and we would like to thank you for your participation. The questionnaire and we would like to thank you for your participation. The questionnaire is anonymous. is anonymous. Alfaland consists of fiv e regions that are identical in every respect other than Alfaland consists of five regions that are identical in every respect other than the incomes of their inhabitants. Everyone within a given region receives the the incomes of their inhabitants. Everyone within a given region receives the same income, but personal incomes differ from region to region. An immigrant same income, but personal incomes differ from region to region. to Alfaland would be assigned at random, with equal probability, to any one of these five regions. Such a person would therefore have a 20% chance of being Two economic policy proposals A and B are being considered for on any one of five income levels. implementation in Alfaland next year. It is known that - apart from their impact on personal incomes - the two policies would have the same effect on Two economic policy proposals A and B are being considered for the population. The impact upon the regions’ incomes would depend upon implementation in Alfaland next year. It is known that - apart from their impact the particular state of the Alfaland economy at the time the policy (A or B) is on personal incomes - the two policies would have the same effect on the to be introduced. population. The impact upon the regions’ incomes would depend upon the particular state of the Alfaland economy at the time the policy (A or B) is to be In each of questions (1) to (6) two alternative lists of incomes A and B (in introduced. Alfaland local currency) are given. Each of these pairs represents the outcomes of the A-policy and the B-policy on the five regions in each of six In each of questions (1) to (6) two alternative lists of incomes A and B (in Alfaland different situations in which Alfaland might find itself next year. In each local currency) are given. Each of these pairs represents the outcomes of the A-policy and the case please state which policy you consider would result in higher B-policy on the five regions in each of six different situations in which Alfaland might find itself inequality in Alfaland by circling A or B. If you consider that the two next year. In each case please state which policy you consider would result in higher risk for a policies will result in the same inequality then circle both A and B. person immigrating to Alfaland by circling A or B. If you consider that the two policies will result in the same risk to a potential immigrant then circle both A and B.
Features of Questionnaire: 1 • Two questionnaires for the price of one: risk questionnaire generated from inequality by Ctrl-H • Students ranked six pairs of income vectors (A and B) in terms of risk and inequality • For each question B was obtained from A by an equalising income transfer from a rich to a poor region • According to the Principle of Transfers, an equalising transfer reduces risk/inequality; this implies that A is riskier/more unequal than B in all six questions
Questionnaire: Numerical Part 1) A = (2, 5, 9, 20, 30) B = (2, 6, 8, 20, 30) 2) A = (2, 5, 9, 20, 30) B = (3, 5, 9, 20, 29) 3) A = (2, 5, 9, 20, 30) B = (2, 6, 9, 20, 29) 4) A = (2, 5, 9, 20, 30) B = (2, 10, 9, 15, 30) 5) A = (10, 10, 10, 10, 30) B = (10, 10, 10, 20, 20) 6) A = (2, 5, 9, 20, 30) B = (2, 6, 9, 19, 30)
Features of Questionnaire 2 • Check the numerical responses with a verbal question • Using the same story we present the issue of the principle of transfers • Then see if they want to change their minds on the numerical problems
Questionnaire: Verbal Part …and for risk k s i r k s i r k s i r k s i r
Questionnaire: A Check
Data Set: Students by Country Number Percentage Total Inequality Risk Total Inequality Risk Argentina 74 38 36 8 8 8 Australia 124 62 62 14 13 14 Belgium 137 87 50 15 18 11 264 126 138 23 21 24 Germany Israel 180 93 87 20 20 20 Sweden 63 31 32 7 7 7 UK 311 150 161 34 32 37 OVERALL 1150 475 441 100 100 100 Students from 7 countries answering inequality and risk questionnaires in equal proportions
The Questionnaire: Personal Characteristics Finally, we would be grateful for some information about yourself: • Are you male or female? M/F • What is your age? _____ years • What is your special subject of study? __________ • Were you employed before university? Yes / No “extreme “extreme • How would you rate your political views? Please put left” right” a � on this scale. “very “very • How would you rate your family’s income in 1990? Poor Rich ” ” Please put a � on this scale. “very “very • How would you rate your own income prospects in Poor Rich ” ” the year 2010? Please put a � on this scale.
Personal Characteristics of Students Equality in means Equality in means Equality in means Equality in means across risk and across risk and across risk and across risk and inequality subgroup. inequality subgroup. inequality subgroup. inequality subgroup. Inequality Risk P-value Definition Mean SD Mean SD Male Dummy 0.63 0.48 0.61 0.49 66 Economic Subject Dummy 0.29 0.45 0.30 0.46 46 Age Years 22.9 4.4 23.2 4.0 32 Employment Dummy 0.43 0.50 0.45 0.50 48 Political Opinion 1-7 (right) 4.0 1.1 4.0 1.1 39 Income 1990 1-7, + 4.4 1.0 4.3 1.1 35 Income Change 2010 1-7, + 0.7 1.2 0.7 1.4 75 Inequality and risk samples are similar across all personal characteristics
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