This paper develops a normative approach to the measurement of ex-ante inequality of opportunity in a multidimensional setting, i.e., when the individual outcome is represented by a multidimensional variable. We characterize three classes of social welfare functions, all endorsing ex ante compensation but each of them reflecting a specific reward principle: (1) utilitarian, (2) agnostic and (3) averse. The first class is implemented via generalized Lorenz Dominance applied to each attribute separately. The agnostic and inequality averse classes are implemented by a welfarist Lorenz ordering, namely, of type-aggregate utilities. In the case of inequality-averse class, utility functions are submodular, hence capturing the dependence between attributes. We also develop normative inequality indices (Atkinson, 1970; Kolm 1969; Sen, 1973) for the classes of welfare functions and study their properties. Finally, we propose an empirical applications of the methods developed in the paper: by using the National Longitudinal Study of Adolescent to Adult Health (Add Health) we evaluate inequality of opportunity in U.S. for the case of three dimensions of individual outcomes, namely, education, health and income.
{"title":"Measuring Multidimensional Inequality of Opportunity","authors":"M. Kobus, Marek Kapera, Vito Peragine","doi":"10.2139/ssrn.3557779","DOIUrl":"https://doi.org/10.2139/ssrn.3557779","url":null,"abstract":"This paper develops a normative approach to the measurement of ex-ante inequality of opportunity in a multidimensional setting, i.e., when the individual outcome is represented by a multidimensional variable. We characterize three classes of social welfare functions, all endorsing ex ante compensation but each of them reflecting a specific reward principle: (1) utilitarian, (2) agnostic and (3) averse. The first class is implemented via generalized Lorenz Dominance applied to each attribute separately. The agnostic and inequality averse classes are implemented by a welfarist Lorenz ordering, namely, of type-aggregate utilities. In the case of inequality-averse class, utility functions are submodular, hence capturing the dependence between attributes. We also develop normative inequality indices (Atkinson, 1970; Kolm 1969; Sen, 1973) for the classes of welfare functions and study their properties. Finally, we propose an empirical applications of the methods developed in the paper: by using the National Longitudinal Study of Adolescent to Adult Health (Add Health) we evaluate inequality of opportunity in U.S. for the case of three dimensions of individual outcomes, namely, education, health and income.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134234827","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This short note argues that cost-benefit analysis (CBA), a tool employed by professional economists to evaluate the welfare consequences of public policies, embodies a variety of failures to heed the warnings of famous classical liberal economists. CBA attributes characteristics of individuals to society, fails to adequately account for the “unseen” consequences of policy, wipes out the future with a social discount rate as if “in the long run we are all dead,” and is an example of how the pursuit of mathematical logic can lead to failures of common sense. As a result of these problems, CBA offers a useful teaching device for students, demonstrating how even modern-day economists at the top of their profession continue to make basic errors pointed out by economists generations ago. CBA in this context is best thought of as a failure to learn from the past.
{"title":"Cost-Benefit Analysis as a Failure to Learn from the Past","authors":"James Broughel","doi":"10.2139/ssrn.3479688","DOIUrl":"https://doi.org/10.2139/ssrn.3479688","url":null,"abstract":"This short note argues that cost-benefit analysis (CBA), a tool employed by professional economists to evaluate the welfare consequences of public policies, embodies a variety of failures to heed the warnings of famous classical liberal economists. CBA attributes characteristics of individuals to society, fails to adequately account for the “unseen” consequences of policy, wipes out the future with a social discount rate as if “in the long run we are all dead,” and is an example of how the pursuit of mathematical logic can lead to failures of common sense. As a result of these problems, CBA offers a useful teaching device for students, demonstrating how even modern-day economists at the top of their profession continue to make basic errors pointed out by economists generations ago. CBA in this context is best thought of as a failure to learn from the past.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126256701","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops the “Losers Distribution,” a new discrete probability distribution that describes the number of losers in a k-player game with n-fold identical trials. The problem of financial exclusion demonstrates one application. Luck is used to unleash, pool and circulate the financial resources of the poor in much the same way that interest rates pool and reallocate financial resources among the non-poor. I propose compensated, subsidized lotteries as a complement to microfinance for providing financing to the poor.
{"title":"The Losers Distribution, with Applications to Financial Exclusion","authors":"John H. Y. Edwards","doi":"10.2139/ssrn.3434535","DOIUrl":"https://doi.org/10.2139/ssrn.3434535","url":null,"abstract":"This paper develops the “Losers Distribution,” a new discrete probability distribution that describes the number of losers in a k-player game with n-fold identical trials. The problem of financial exclusion demonstrates one application. Luck is used to unleash, pool and circulate the financial resources of the poor in much the same way that interest rates pool and reallocate financial resources among the non-poor. I propose compensated, subsidized lotteries as a complement to microfinance for providing financing to the poor.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123723342","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I show that a stylized fact on the decades-long stability in preferences for income redistribution – which has surprised public economists, given the spike in inequality – masks a divergence across parties. I then demonstrate that the widening divide owes to preferences sorting rather than strengthening. Next, I return to survey experiments on the elasticity of preferences to information treatments and, in contrast to previous literature, I find a simple treatment that induces substantial support for taxation and redistribution among conservatives. This treatment closes upwards of half the gap in preferences between liberals and conservatives, a key finding amidst worsening polarization.
{"title":"How Elastic are Preferences for Redistribution? New Results on Partisan Polarization","authors":"G. Fenton","doi":"10.2139/ssrn.3538441","DOIUrl":"https://doi.org/10.2139/ssrn.3538441","url":null,"abstract":"I show that a stylized fact on the decades-long stability in preferences for income redistribution – which has surprised public economists, given the spike in inequality – masks a divergence across parties. I then demonstrate that the widening divide owes to preferences sorting rather than strengthening. Next, I return to survey experiments on the elasticity of preferences to information treatments and, in contrast to previous literature, I find a simple treatment that induces substantial support for taxation and redistribution among conservatives. This treatment closes upwards of half the gap in preferences between liberals and conservatives, a key finding amidst worsening polarization.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114539690","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We find that most of the rising between firm earnings inequality that dominates the overall increase in inequality in the U.S. is accounted for by industry effects. These industry effects stem from rising inter-industry earnings differentials and not from changing distribution of employment across industries. We also find the rising inter-industry earnings differentials are almost completely accounted for by occupation effects. These results link together the key findings from separate components of the recent literature: one focuses on firm effects and the other on occupation effects. The link via industry effects challenges conventional wisdom.
{"title":"Between Firm Changes in Earnings Inequality: The Dominant Role of Industry Effects","authors":"J. Haltiwanger, James R. Spletzer","doi":"10.3386/w26786","DOIUrl":"https://doi.org/10.3386/w26786","url":null,"abstract":"We find that most of the rising between firm earnings inequality that dominates the overall increase in inequality in the U.S. is accounted for by industry effects. These industry effects stem from rising inter-industry earnings differentials and not from changing distribution of employment across industries. We also find the rising inter-industry earnings differentials are almost completely accounted for by occupation effects. These results link together the key findings from separate components of the recent literature: one focuses on firm effects and the other on occupation effects. The link via industry effects challenges conventional wisdom.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123567213","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Entrepreneurs, particularly in the developing world, often hire from their networks: friends, family, and resulting referrals. Network hiring has two benefits, documented extensively in the empirical literature: entrepreneurs know more about the ability of their network (and indeed they are often positively selected), and network members may be less likely to engage in moral hazard. We study theoretically how network hiring affects the size and composition (i.e., whether to hire friends or strangers) of the firm. Our primary result is that network hiring, while locally beneficial, can be globally inefficient. Because of the existence of a network, entrepreneurs set inefficiently low wages, firms are weakly too small, rely too much on networks for hiring, and resulting welfare losses increase in the quality of the network. Further, if entrepreneurs are uncertain about the true quality of the external labor market, the economy may become stuck in an information poverty trap where forward-looking entrepreneurs or even entrepreneurs in a market with social learning never learn the correct distribution of stranger ability, exacerbating welfare losses. We show that the poverty trap can worsen when network referrals are of higher quality.
{"title":"Network-Based Hiring: Local Benefits; Global Costs","authors":"Arun G. Chandrasekhar, Melanie Morten, A. Peter","doi":"10.3386/w26806","DOIUrl":"https://doi.org/10.3386/w26806","url":null,"abstract":"Entrepreneurs, particularly in the developing world, often hire from their networks: friends, family, and resulting referrals. Network hiring has two benefits, documented extensively in the empirical literature: entrepreneurs know more about the ability of their network (and indeed they are often positively selected), and network members may be less likely to engage in moral hazard. We study theoretically how network hiring affects the size and composition (i.e., whether to hire friends or strangers) of the firm. Our primary result is that network hiring, while locally beneficial, can be globally inefficient. Because of the existence of a network, entrepreneurs set inefficiently low wages, firms are weakly too small, rely too much on networks for hiring, and resulting welfare losses increase in the quality of the network. Further, if entrepreneurs are uncertain about the true quality of the external labor market, the economy may become stuck in an information poverty trap where forward-looking entrepreneurs or even entrepreneurs in a market with social learning never learn the correct distribution of stranger ability, exacerbating welfare losses. We show that the poverty trap can worsen when network referrals are of higher quality.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127327316","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In an earlier paper [Rational choice and AGM belief revision, Artificial Intelligence, 2009] a correspondence was established between the choice structures of revealed-preference theory (developed in economics) and the syntactic belief revision functions of the AGM theory (developed in philosophy and computer science). In this paper we extend the re-interpretation of (a generalized notion of) choice structure in terms of belief revision by adding: (1) the possibility that an item of ``information'' might be discarded as not credible (thus dropping the AGM success axiom) and (2) the possibility that an item of information, while not accepted as fully credible, may still be ``taken seriously'' (we call such items of information ``allowable''). We establish a correspondence between generalized choice structures (GCS) and AGM belief revision; furthermore, we provide a syntactic characterization of the proposed notion of belief revision, which we call filtered belief revision.
{"title":"Filtered Belief Revision and Generalized Choice Structures","authors":"G. Bonanno","doi":"10.2139/ssrn.3527743","DOIUrl":"https://doi.org/10.2139/ssrn.3527743","url":null,"abstract":"In an earlier paper [Rational choice and AGM belief revision, Artificial Intelligence, 2009] a correspondence was established between the choice structures of revealed-preference theory (developed in economics) and the syntactic belief revision functions of the AGM theory (developed in philosophy and computer science). In this paper we extend the re-interpretation of (a generalized notion of) choice structure in terms of belief revision by adding: (1) the possibility that an item of ``information'' might be discarded as not credible (thus dropping the AGM success axiom) and (2) the possibility that an item of information, while not accepted as fully credible, may still be ``taken seriously'' (we call such items of information ``allowable''). We establish a correspondence between generalized choice structures (GCS) and AGM belief revision; furthermore, we provide a syntactic characterization of the proposed notion of belief revision, which we call filtered belief revision.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"240 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133940070","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cost-Benefit Analysis (CBA) is a widely applied economic appraisal tool to support the planning and decision-making process for transport projects. In a CBA, impacts of government projects are made comparable by converting them into monetary units using the number of euros individuals are willing to pay from their private income. Scholars argue that such willingness-to-pay estimates may be a poor proxy for how the same individuals believe that their governments should trade-off public budget and impacts of government projects. Participatory Value Evaluation (PVE) is a new appraisal method specifically designed to overcome this critique. PVE establishes the desirability of government projects based on an experiment in which individuals select their preferred portfolio of government projects given a constrained public budget. The present paper investigates whether CBA and PVE lead to different policy recommendations. We conducted CBAs and a PVE for 16 transport projects and find that projects which focus on improving traffic safety and improvements for cyclists/pedestrians perform relatively good in the PVE, whereas car projects perform relatively good in the CBA analysis. Moreover, this paper explains how the results of a PVE should be positioned next to the results of a CBA and it generates empirical insights into potential reasons why safety projects and cycling project perform differently in a PVE.
{"title":"Participatory Value Evaluation Versus Cost-Benefit Analysis: Comparing Recommendations in the Context of Urban Mobility Investments","authors":"N. Mouter, P. Koster, T. Dekker","doi":"10.2139/ssrn.3415411","DOIUrl":"https://doi.org/10.2139/ssrn.3415411","url":null,"abstract":"Cost-Benefit Analysis (CBA) is a widely applied economic appraisal tool to support the planning and decision-making process for transport projects. In a CBA, impacts of government projects are made comparable by converting them into monetary units using the number of euros individuals are willing to pay from their private income. Scholars argue that such willingness-to-pay estimates may be a poor proxy for how the same individuals believe that their governments should trade-off public budget and impacts of government projects. Participatory Value Evaluation (PVE) is a new appraisal method specifically designed to overcome this critique. PVE establishes the desirability of government projects based on an experiment in which individuals select their preferred portfolio of government projects given a constrained public budget. The present paper investigates whether CBA and PVE lead to different policy recommendations. We conducted CBAs and a PVE for 16 transport projects and find that projects which focus on improving traffic safety and improvements for cyclists/pedestrians perform relatively good in the PVE, whereas car projects perform relatively good in the CBA analysis. Moreover, this paper explains how the results of a PVE should be positioned next to the results of a CBA and it generates empirical insights into potential reasons why safety projects and cycling project perform differently in a PVE.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115222264","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops the symmetric power order, a measure of voting power for multicandidate elections. The measure generalizes standard pivotality-based voting power measures for binary elections, such as Banzhaf power. At the same time, the measure is not based on pivotality, but rather on a measure of freedom of choice in individual decisions. Indeed, I use the symmetric power order to show that pivotality only measures voting power in monotonic elections, and is not a good measure in multicandidate elections. Pivotality only provides an upper bound on voting power. This result establishes a relation between voting power and strategy-proofness.
{"title":"Freedom and Voting Power","authors":"I. Sher","doi":"10.2139/ssrn.3219554","DOIUrl":"https://doi.org/10.2139/ssrn.3219554","url":null,"abstract":"This paper develops the symmetric power order, a measure of voting power for multicandidate elections. The measure generalizes standard pivotality-based voting power measures for binary elections, such as Banzhaf power. At the same time, the measure is not based on pivotality, but rather on a measure of freedom of choice in individual decisions. Indeed, I use the symmetric power order to show that pivotality only measures voting power in monotonic elections, and is not a good measure in multicandidate elections. Pivotality only provides an upper bound on voting power. This result establishes a relation between voting power and strategy-proofness.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115540293","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a large panel of countries, this paper studies whether, or not, democracies can disproportionately produce better economic outcomes for the poor than non-democracies. To deal with the endogeneity of democracy and inequality, a regional democratisation wave is used to isolate the exogenous variation in country-level democracy. Our main finding is that the exogenous component of democracy significantly and robustly decreased inequality, after controlling for key inequality determinants. We identify that two potential mechanisms through which democracy affects inequality are structural transformation and middle-class bias channels.
{"title":"Life May Be Unfair, But Do Democracies Make It Any Less Burdensome?","authors":"Ọ. Oyèkọ́lá","doi":"10.2139/ssrn.3516986","DOIUrl":"https://doi.org/10.2139/ssrn.3516986","url":null,"abstract":"Using a large panel of countries, this paper studies whether, or not, democracies can disproportionately produce better economic outcomes for the poor than non-democracies. To deal with the endogeneity of democracy and inequality, a regional democratisation wave is used to isolate the exogenous variation in country-level democracy. Our main finding is that the exogenous component of democracy significantly and robustly decreased inequality, after controlling for key inequality determinants. We identify that two potential mechanisms through which democracy affects inequality are structural transformation and middle-class bias channels.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"161 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116266387","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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