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Unit‐Consistent Decomposable Inequality Measures

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  • BUHONG ZHENG

Abstract

This paper introduces a new axiom—the unit consistency axiom—into inequality measurement. This new axiom requires the ordinal inequality rankings (rather than the cardinal indices) to be unaffected when incomes are expressed in different units. I argue that unit consistency is an indispensable axiom for the measurement of income inequality. When unit consistency is combined with decomposability, I show that the unit‐consistent decomposable class of inequality measures is a two‐parameter extension of the one‐parameter generalized entropy class. The extended class accommodates a variety of value judgments and includes different types of inequality measures.

Suggested Citation

  • Buhong Zheng, 2007. "Unit‐Consistent Decomposable Inequality Measures," Economica, London School of Economics and Political Science, vol. 74(293), pages 97-111, February.
    • Handle: RePEc:bla:econom:v:74:y:2007:i:293:p:97-111
    DOI: 10.1111/j.1468-0335.2006.00524.x
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