Restricted and Unrestricted Dominance for Welfare, Inequality, and Poverty Orderings

This paper extends the previous literature on the ethical links between the measurement of poverty, social welfare and inequality. We show inter alia, how, when the range of possible poverty lines is unbounded above, a robust ranking of absolute poverty may be interpreted as a robust ranking of social welfare, and a robust ranking of relative poverty may be interpreted as a robust ranking of inequality, and this, for any order of stochastic dominance.     

The subgroup decomposable intermediate indices of inequality

An inequality index is called subgroup decomposable if it can be expressed as a weighted sum of inequality values calculated for population subgroups plus inequality arising from differences among subgroup means. This paper derives the class of subgroup decomposable inequality indices that satisfies the Bossert–Pfingsten type intermediate inequality invariance. When the intermediate inequality equivalence concept coincides with the relative notion of inequality, the derived class becomes the Cowell–Shorrocks generalized entropy family. For comments and suggestions, we are grateful to Peter J. Lambert and two anonymous referees. We thank Chranjib Neogi for drawing the only figure of the paper.     

A stochastic dominance approach to the measurement of discrimination

This note suggests a bridge between stochastic dominance (Rothschild and Stiglitz, 1970 [17], 1973 [18]), inequality measurement (Atkinson, 1970 [1]) and discrimination measurement (Gastwirth, 1975 [10]). Discrimination orderings are defined and illustrated through discrimination curves, in the same spirit as stochastic dominance analysis. The main result, which links the second order discrimination curve and the Gastwirth discrimination index, also generalizes the equivalence between Generalized Lorenz dominance and second order stochastic dominance.     

Growth-equity decomposition of a change in poverty: An axiomatic approach

This paper studies a class of subgroup decomposable poverty measures whose changes may be decomposed into a growth component and a redistribution component. A set of reasonable axioms leads inexorably to a combination of the Watts measure and the poverty gap measure.     

Multidimensional welfare distributions: empirical application to household panel data from Vietnam

This article explores the empirical application of theoretical multidimensional welfare distribution analysis techniques to real household welfare distributions. The article operationalizes recent conceptual developments in multidimensional distribution theory and assesses their usefulness for the measurement of multidimensional household inequality. The results strongly highlight the importance of bringing nonmonetary aspects of household welfare into the forefront of inequality analysis. Agreement over the various approaches to the measurement of multidimensional inequality entails, however, nontrivial decisions that may limit the practical usefulness of these measures. We suggest that the use of multidimensional inequality ranges and the application of restrictive dominance criteria to multidimensional welfare distributions may open significant scope for further developments in the empirical analysis of multidimensional inequality.     

Capital Accumulation in a Stochastic Overlapping Generations Model with Social Security

This paper analyzes the impact of pay-as-you-go financed social security on the stochastic process for the capital stock in a stochastic overlapping generations model. It is shown that the probability distribution of the capital stock in absence of social security dominates that in a pay-as-you-go system in the sense of stochastic dominance. Furthermore, the study demonstrates that the sufficient conditions ensuring the existence and uniqueness of stationary equilibria in a pay-as-you-go system are more restrictive than in the model without social security. Journal of Economic Literature Classification Numbers: C62, H55.     

ON THE “PRO‐POORNESS” OF GROWTH IN A MULTIDIMENSIONAL CONTEXT

This paper represents a first attempt to bring together the issues of multidimensional poverty and growth “pro‐poorness” assessments. More specifically, we suggest the use of sequential dominance procedures to test the “pro‐poorness” of observed growth spells when poverty is measured on the basis of income and another discrete well‐being attribute. Sequential procedures are also used to obtain graphical tools that are consistent with the spirit of Ravallion and Chen's growth incidence curve and Son's poverty growth curve. Contrary to traditional unidimensional tests, our method makes it possible to take into account the importance of deprivation correlations at the individual level and thus may reverse results observed with the traditional tools used to check the “pro‐poorness” of growth. An illustration of our approach is given using Turkish data for the period 2003–05.     

The probability of multidimensional poverty: A new approach and an empirical application to EU-SILC data

This paper proposes a novel method to analyze multidimensional poverty by using a large set of feasible weights to summarize the information about the poor, which enables remaining agnostic about the relative importance given to different poverty dimensions. This method allows for the calculation of the individual probability of being poor in a multidimensional perspective. The distribution of individual probabilities can then be combined with Generalized Lorenz dominance techniques to derive unanimous consent for a wide class of social welfare functions with a minimum load of value judgments. The innovations proposed here allow to move from a dual definition of poverty, where poor and non-poor individuals are classified in a mutually exclusive context, to a continuous measure of deprivation capturing both the extensive and intensive margin of multidimensional poverty. The empirical application of the method consists of measuring multidimensional poverty in ten selected countries using four waves of EU-SILC data (2008–2014).     

Mean-Gini analysis of stochastic externalities: The case of groundwater contamination

The mean-Gini approach is used to analyze stochastic externalities generated by agricultural production. The model addresses the problem of groundwater pollution caused by excessive fertilizer application. Inherent in the mean-Gini approach to expected utility maximization is a two-fold value: the simplicity of the two-parameter mean-variance model and satisfaction of necessary and sufficient conditions for stochastic dominance. Price and quantity policy recommendations to control externalities are formulated based upon the relative assessment of uncertainty by the regulatory authority and the farmers. Using the Gini as a measure of risk allows for the quantification of control policy measures under differentiated risk aversion and multiple sources of pollution. The model shows that when producers underestimate uncertainty, quota policies restricting fertilizer are more efficient than tax policies in reducing groundwater contamination.Work on this paper was carried out when visiting the University of Maryland. Financial aid for the work was provided by the USDA ERS-NRED under a cooperative agreement between the Department of Agricultural and Resource Economics, University of Maryland, and the USDA — Economic Research Service — Natural Resource Economics Division, I am grateful to John Miranowski and Darrell Hueth for that support. I am indebted as well to Lana Shalit, who helped me revise the paper.     

Measuring the severity of unemployment

A social-welfare (illfare) function framework is applied to compare two demographic groups as to the severity of their unemployment experience. This is based on the assumption that for each individual the disutility of unemployment is an increasing and convex function of spell length. The very concept of spell length and its distribution, however, is not unambiguous. In contrast to previous literature which focuses exclusively on the interrupted spell length in a stock of unemployed, we stress the usefulness of the concept of complete spell length in a cohort of unemployed. We establish an equivalence relationship between second-degree dominance in the cohort and first-degree dominance in the stock. For specific illfare functions the disutilityU(x) when applied to the cohort and the disutilityU(x) when applied to the stock will produce the same value of aggregate welfare (illfare).     

Third-degree stochastic dominance and random variables

This paper addresses the question of whether there is a random-variables characterization of third-degree stochastic dominance under equal means and variances that is similar to a well-known characterization of second-degree stochastic dominance under equal means. The answer given is mixed.     

Stochastic Dominance Analysis of Soil and Water Conservation in Subsistence Crop Production in the Eastern Ethiopian Highlands: The Case of the Hunde-Lafto Area

The aim of this paper is to analyze whether investment in soil and water conservation results in a higher yield and income and/or mitigate variability in yield and income to subsistence farm households in the Hunde-Lafto area. Net returns from crop production with and without soil and water conservation (SWC) are compared based on stochastic dominance (SD) criteria. A non-parametric first order SD and normalized second order are used for data analysis. Analysis is based on the Soil Conservation Research Program (SCRP) database for the Hunde-Lafto research unit. The results of the analysis suggest that adopting a conservation strategy results in higher grain yield and net return than in not adopting. The normalized second order SD analysis results do not support the hypothesis that conservation strategy is unambiguously better than a noconservation strategy in reducing variability in yield and net return to farmers. However, conservation strategy has shown second order dominance at lower levels of yield and income that often correspond to unfavorable rainfall conditions. This makes it a preferred strategy to cope with the most prevalent risk factor of moisture shortage. Therefore, appropriate policies to help and encourage farmers to adopt SWC structures will contribute to improving the welfare of subsistence farm households in the study area and in other similar settings in the country. Designing and implementing SWC techniques that may result in unambiguous second order SD dominance will further improve the desirability and adoption of conservation measures.     

Cost-Effective and Stochastic Dominance Approaches to Stochastic Pollution Control

Most economic studies of pollution externalities focus on the relative efficiency or cost-effectiveness of alternative pollution control instruments. Much less attention has been paid to policy goals and objectives. However, a comprehensive pollution control strategy depends on all of these choices. This paper examines several efficiency properties of cost-effective pollution control strategies in a stochastic setting when economic damages from pollution are unknown. A number of policy goals are considered. In this setting and under a primal approach, it is found that certain stochastic dominance conditions must be satisfied for the strategies to exhibit desirable efficiency properties. A dual approach to cost-effective pollution control, which is based on a stochastic dominance objective, is also considered.     

Cyclicality of stock market volatility

By utilizing the significance and stochastic dominance tests, this paper formally tests the relationship between stock market volatility and the business cycle. Results show that, for most matured markets, stock market volatility is countercyclical, while for emerging markets, the volatility can be procyclical.     

Trends in real income in Britain: A microeconomic analysis

Trends in real national income are typically assessed using aggregate indicators such as GDP per capita, or mean household income, whereas the income distribution literature focuses on trends in income inequality. By contrast this paper takes an integrated approach to real national income measurement; it uses methods incorporating both size and distributional considerations, and applies them to household income microdata in order to measure changes in real income in the U.K. during the 1980s. A parametric class of decomposable real income indisces is proposed which complements quasi-ordering methods such as rank and generalised dominance criteria by telling us how much real income increased over the period (if at all). The indices are also additively decomposable by population subgroup, a property which helps reveal who the gainers and losers were. The analysis also draws attention to the normative and statistical issues raised by the presence of a few very small incomes.     

National pro-poor spending programmes and their effect on income inequality and poverty: Evidence from Vietnam

This article examines the causal effects of the national (pro-poor) targeted programmes (NTPs) on both poverty incidence and inequality in Vietnam over the period 2002–2010. While the links between NTPs and poverty alleviation and income inequality have previously been analysed independently, this study is the first to offer a comprehensive analysis of NTPs expenditure on poverty and inequality simultaneously. Applying the system generalized method of moments estimator to a panel of Vietnamese regional data, we are unable to establish that NTPs have significantly mitigated poverty incidence. However, we estimate that NTPs have significantly increased inequality. We offer possible explanations why the NTPs have resulted in these unintended outcomes and discuss potential policies which can reduce both poverty and inequality.     

THE EFFECT ON POVERTY STATUS IN ISRAEL OF CONSIDERING WEALTH AND VARIABILITY OF INCOME

This paper assesses the effects of including wealth and the variability of income on the incidence of poverty and the degree of income inequality in Israel. A special survey, which includes data on the wealth and income of a national sample of Israeli families in 1963–64 and 1964–65, allows us to go beyond measures based on current income alone.
The first section reviews earlier studies of poverty in Israel. The next section looks at poverty and inequality in terms of current income, current wealth, and a combined measure of income and wealth. The combined measure is the Hansen-Weisbrod measure (HW), which equals income plus the annuity value of wealth, assuming all wealth is just consumed at the time of death. It is interesting that, in spite of the much higher wealth inequality than income inequality, the HW measure was slightly more equally distributed than income. This result occurred because the annuity component made up a low share of the total HW measure and the correlation between income and wealth was well under 1. Although overall inequality and poverty were similar for income and HW measures, the incidence of poverty by subgroup depended on the measure used.
The final section presents a dynamic view of poverty and inequality. Year-to-year changes in poverty were substantial. Because of the use of a relative poverty concept and the rise in real incomes, the real income poverty line rose by 15 percent between 1963 and 1964. Still, of those in income poverty in 1963, 37 percent managed to escape poverty in 1964. The paper shows how the degree to which poverty was stable or transitory varied substantially by age and country of origin.     

我国农村低收入群体贫困变动及其影响因素——基于福建省农村居民收入分组数据的分析

旨在考察一个较长的时间序列内农村低收入人口贫困状况的动态变化,探明经济增长和收入分配等宏观层面影响因素与贫困指数之间的定量关系与内在联系。基于GQ模型和（模型,选取具备可分解性的FGT指数,采用1990—2006年福建省农村居民收入分组面板数据,分别运用4条低收入标准线对低收入群体的H指数、PG指数、SPG指数和贫困弹性进行模拟。实证结果表明,福建省的经济增长有效减少了绝对低收入人口数量,而收入分配差距的扩大却降低了低收入群体的潜在福利,从而影响农村相对贫困的减少效果。     

Multivariate decision-making

Consider a set of multivariate risky options. A partial ordering of these options is quite difficult, and even for the two-dimensional case a knowledge of the cross derivatives of the decision-maker's utility function is required. In this paper we establish first-degree multivariate stochastic dominance by applying the concepts of the indirect utility function and the indirect probability distribution. Thus, we reduce the complex multivariate risky option into a univariate risky option where the random variable is the derived indirect income. The second-degree stochastic dominance rule is also derived under certain restrictions on the utility function.     

Measuring systemic risk with regime switching in tails

This paper motivates the importance of modeling nonlinearities in measuring systemic risk. I capitalize this motivation by generalizing the CoVaR approach proposed by Adrian and Brunnermeier (2016) to allow it switching between a high and a normal risk regime filtered from data.. Considering the U.S. large bank holding companies (BHCs), this paper shows that modeling regime changes in tails is capable of capturing both amplification and mean-reversion effects of an adverse shock to a bank's balance sheet on the banking system. Using the Kolmogorov–Smirnov test statistics with and without bootstrapping, I perform the significance test to identify systemically important financial institutions (SIFIs), and the stochastic dominance test to rank the identified SIFIs. The stochastic dominance test raises the concern that the CoVaR measure underestimates systemic risk contributions for SIFIs but overestimates for non-SIFIs. Finally, applying the BHCs' characteristics and housing market price to forecast the regime-switching systemic risk out-of-sample, I obtain from 4- and 8-quarter-ahead horizons a desirable countercyclical, forward-looking measure of systemic risk.