Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2013:18:
Lost in Translation: Rethinking the Inequality-Equivalence Criteria for Bounded Health Variables

Gustav Kjellsson and Ulf-G. Gerdtham ()

Abstract: What change in the distribution of a population’s health preserves the level of inequality? The answer to this analogous question in the context of income inequality lies somewhere between a uniform and a proportional change. These polar positions represent the absolute and relative inequality equivalence criterion (IEC), respectively. A bounded health variable may be presented in terms of both health attainments and shortfalls. As a distributional change cannot simultaneously be proportional to attainments and to shortfalls, relative inequality measures may rank populations differently from the two perspectives. In contrast to the literature that stresses the importance of measuring inequality in attainments and shortfalls consistently using an absolute IEC, this chapter formalizes a new compromise concept for a bounded variable by explicitly considering the two relative IECs, defined with respect to attainments and shortfalls, to represent the polar cases of defensible positions. We use a surplus-sharing approach to provide new insights on commonly used inequality indices by evaluating the underpinning IECs in terms of how infinitesimal surpluses of health must be successively distributed to preserve the level of inequality. We derive a one-parameter IEC that, unlike those implicit in commonly used indices, assigns constant weights to the polar cases independent of the health distribution.

Keywords: health inequality; bounded variable; inequality equivalence criteria; (follow links to similar papers)

JEL-Codes: D63; I14; (follow links to similar papers)

23 pages, May 29, 2013, Revised January 2, 2014

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This paper is published as:
Kjellsson, Gustav and Ulf-G. Gerdtham, (2013), 'Lost in Translation: Rethinking the Inequality-Equivalence Criteria for Bounded Health Variables', Research on Economic Inequality, Vol. 21, pages 3-32

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