Unit-Consistent Decomposable Inequality Measures
Article first published online: 9 JUN 2006
Volume 74, Issue 293, pages 97–111, February 2007
How to Cite
ZHENG, B. (2007), Unit-Consistent Decomposable Inequality Measures. Economica, 74: 97–111. doi: 10.1111/j.1468-0335.2006.00524.x
- Issue published online: 12 JAN 2007
- Article first published online: 9 JUN 2006
- Final version received 2 November 2005.
This paper introduces a new axiom—the unit consistency axiom—into inequality measurement. This new axiom requires the ordinal inequality rankings (rather than the cardinal indices) to be unaffected when incomes are expressed in different units. I argue that unit consistency is an indispensable axiom for the measurement of income inequality. When unit consistency is combined with decomposability, I show that the unit-consistent decomposable class of inequality measures is a two-parameter extension of the one-parameter generalized entropy class. The extended class accommodates a variety of value judgments and includes different types of inequality measures.