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The Measurement of Welfare Change

  • Economics Discussion Papers
  • July 1, 2018
  • Bhaskar Dutta,
  • Walter Bossert, Bhaskar Dutta

We propose a class of measures of welfare change that are based on the generalized Gini social welfare functions. We analyze these measures in the context of a second-order dominance property that is akin to generalized Lorenz dominance as introduced by Shorrocks (1983) and Kakwani (1984). Because we consider welfare differences rather than welfare levels, the requisite equivalence result involves linear welfare functions (that is, those associated with the generalized Ginis) only, as opposed to the entire class of strictly increasing and strictly S-concave welfare indicators. Moving from second-order dominance to first-order dominance does not change this result significantly: for numerous pairs of income distributions, the generalized Ginis remain the only strictly increasing and strictly S-concave measures that are compatible with this first-order dominance condition phrased in terms of welfare change. Our final result provides a characterization of our measures of welfare change in the spirit of Weymark’s (1981) original axiomatization of the generalized Gini welfare measures.

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