A general rank-dependent approach for distributional comparisons

Working Paper 2021-567

Abstract

This paper provides a normative framework for distributional comparisons within a rank-dependent and bidimensional setting where individuals’ well-being is characterized by a monetary and a non-monetary dimension (income and needs for instance) and when the focus is on inequality at the bottom as well as at the top of distribution in both dimensions. To this end, we develop third order inverse stochastic dominance conditions for classes of social welfare functions satisfying: i) Threshold Dependent Positional Transfer Sensitivity with respect to the monetary dimension (TDPT); ii) TDPT combined with downside inequality aversion with respect to the non-monetary dimension; iii) TDPT combined with upside inequality aversion with respect to the non-monetary dimension. Our results emerge along with the existing one, formulated by Zoli (2000) supporting downside inequality aversion both with respect to income and needs and Aaberge (2009) supporting upside inequality aversion with respect to income.

Authors: Flaviana Palmisano, Ida Petrillo.

Keywords: sequential stochastic dominance; social welfare; inequality
JEL: D31, D63, I31