Inequality of opportunity

Abstract

This chapter deals with the welfare evaluation of income distributions when agents are heterogeneous, regarding needs and deserts, focussing on inequality of opportunity rather than on inequality of outcomes. The basic idea behind this approach is that individual incomes can be regarded as the result of two different elements: free choices and external circumstances. It is the inequality associated with the agents’ external circumstances that is unfair, whereas differences derived from free individual decisions on a common ground are ethically admissible. We present here two different ways of approaching the measurement of inequality of opportunity. The first one is based on the additive decomposability properties of Theil’s index. The second one applies to the case in which the reference variable is categorical rather than quantitative and provides an application to the measurement of inequality in educational outcomes, using PISA data as a reference.