Normative inequality indices

Abstract

This chapter describes the standard approach to normative inequality measurement. The key idea is to interpret inequality as a welfare loss, when social welfare is measured by a conventional social welfare function. We focus on the of Atkinson family of inequality indices, which extends the initial ideas of Dalton by applying some of the notions that are common in expected utility theory. Atkinson uses the notion of equally distributed equivalent income to evaluate the actual distribution and to assess the size of the welfare loss. Those inequality indices are derived from a utilitarian social welfare function applied to individuals with identical cardinal utility functions. Atkinson generates a family of indicators that depend on a single parameter, to be understood as a measure of inequality aversion.