New approaches to measuring inequality: From household decisions to global comparisons

Project leader

Funding source

Swedish Research Council - Vetenskapsrådet (VR)

Project Details

Start date: 01/01/2016
End date: 31/12/2019
Funding: 1572000 SEK


The traditional approach to measuring economic inequality consists of selecting a measure of real income and representing its distribution using the Lorenz curve or a summary scalar index, such as the Gini. Real income is typically constructed by adjusting nominal income for purchasing power. The project leader's research agenda is to extend the traditional approach in three directions. First, new ways of measuring the allocation of resources within households are investigated. It is often the case - particularly in relatively poor countries – that information on nominal income is only available at the household level. Even if individual income is available, it may not reflect individual purchasing power as income pooling takes place within households. An appraisal of resource allocation within households (between adults and also children), is therefore needed. This project designs and applies new ways of identifying those, based on the matching of data from laboratory experiments, field experiments, and micro data on income and expenditures. Second, this project addresses inequality acceptance. Individuals may accept inequality when it arises from certain sources, e.g., differences in work effort. This is not reflected in the standard approaches as the baseline is always strict equality. A generalized approach is provided and novel experimental methods are applied to identify heterogeneity in inequality acceptance both across individuals and across countries. Third, the issue of price adjustment, which has stymied the measurement of global inequality, is addressed. Standard adjustments are not consistent with observed behavior: they ignore differences in consumer baskets due to non-homothetic (as well as heterogeneous) preferences, and some also ignore substitution as a response to relative price changes. New methods based on micro data and observed consumer behavior are applied to address the shortcomings, among them a novel method to allow for preference heterogeneity.

Last updated on 2017-27-07 at 13:16