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Upward and downward bias when measuring inequality of opportunity

Working Paper 2016-406

Abstract

We show that, when measuring inequality of opportunity with survey data, scholars incur two types of biases. A well-known downward-bias, due to partial observability of circumstances that affect individual outcome, and an upward bias, which depends on the econometric method used and the quality of the available data. We suggest a simple criterion to balance between the two sources of bias based on cross validation. An empirical application, based on 26 European countries, shows the usefulness of our method.

Authors: Paolo Brunori, Vito Peragine, Laura Serlenga.

Keywords: inequality of opportunity, model selection, variance-bias trade-off.
JEL: C52, D3, D63.