Attitudes to Inequality and Poverty Frank Cowell June 2001 Some - - PowerPoint PPT Presentation

Attitudes to Inequality and Poverty

Frank Cowell

June 2001

Some Basic Questions

• Where do ideas about inequality and

poverty comparisons come from?

• How are they related to other distributional

concepts?

• Are there systematic differences in attitudes

amongst groups of the population?

Theoretical Approaches

• Ad hoc measures of inequality and poverty
• Social welfare approaches
• Axiomatic approaches

Outline of present approach

• Focus on specific issues of the inequality or

poverty map.

• Encapsulate them in a series of questions
• Ask people…
• Example. Let’s look at the core of inequality analysis,

which is also used in modern approaches to poverty comparisons

Pigou’s Approach to Income Inequality

1 2 3 4 5 6 7 8 9 10

$

P R

1 2 3 4 5 6 7 8 9 10

$

P R

1 2 3 4 5 6 7 8 9 10

$

P R

1 2 3 4 5 6 7 8 9 10

$

R P

Increasing Inequality

Pigou’s Approach: Limitations

• Comparability of incomes
• Absence of History
• Restriction to two persons

Dalton’s Approach

• The Principle of Transfers is often referred to as the

“Pigou-Dalton” condition

• This is a bit misleading
• Hugh Dalton strengthened the Pigou idea considerably

(Econ Journal 1920)

• This was to give a neat form for the n-person economy
• It formed the basis of all the modern work on

Distributional Analysis, including Social Welfare and Poverty

But do you think it’s reasonable? You do? Perhaps think again…

Dalton’s Approach

Which group seems to have the more unequal distribution?

1 2 3 4 5 6 7 8 9 10 11 12 13 1 2 3 4 5 6 7 8 9 10 11 12 13

$ $

The “Wrong” Answer?

1 2 3 4 5 6 7 8 9 10 11 12 13 1 2 3 4 5 6 7 8 9 10 11 12 13

$ $

The “Truth”?

1 2 3 4 5 6 7 8 9 10 11 12 13 1 2 3 4 5 6 7 8 9 10 11 12 13

$ $

Issues to be Investigated

• What form of inequality comparisons do

people commonly make?

• Do they have the same structure as risk

comparisons?

• What about social welfare?
• The Atkinson analogy
• Rothschild-Stiglitz
• The Harsanyi paradigm
• The Atkinson analogy
• Rothschild-Stiglitz
• The Harsanyi paradigm

Outline of Approach

• Questionnaire responses of international group of
• ver 1100 students
• Questionnaire experiments were run during 1998
• Each session run during lecture/class time
• Questionnaire consisted of a combination of

(related) numerical problems and a verbal question

• Although the experiment was anonymous

individuals were asked about personal characteristics

The Questionnaire

INEQUALITY QUESTIONNAIRE

This questionnaire concerns people's attitude to inequality. We would be interested in your view, based on hypothetical situations. Because it is about attitudes there are no "right"

• answers. Some of the possible answers correspond to assumptions consciously made by

economists: but these assumptions may not be good ones. Your responses will help to shed some light on this, and we would like to thank you for your participation. The questionnaire is anonymous. Alfaland consists of five regions that are identical in every respect other than the incomes of their inhabitants. Everyone within a given region receives the same income, but personal incomes differ from region to region. Two economic policy proposals A and B are being considered for implementation in Alfaland next year. It is known that - apart from their impact on personal incomes - the two policies would have the same effect on the population. The impact upon the regions’ incomes would depend upon the particular state of the Alfaland economy at the time the policy (A or B) is to be introduced. In each of questions (1) to (6) two alternative lists of incomes A and B (in Alfaland local currency) are given. Each of these pairs represents the

• utcomes of the A-policy and the B-policy on the five regions in each of six

different situations in which Alfaland might find itself next year. In each case please state which policy you consider would result in higher inequality in Alfaland by circling A or B. If you consider that the two policies will result in the same inequality then circle both A and B.

RISK QUESTIONNAIRE

This questionnaire concerns people's attitude to risk. We would be interested in your view, based on hypothetical situations. Because it is about attitudes there are no "right" answers. Some of the possible answers correspond to assumptions consciously made by economists: but these assumptions may not be good ones. Your responses will help to shed some light on this, and we would like to thank you for your participation. The questionnaire is anonymous. Alfaland consists of fiv e regions that are identical in every respect other than the incomes of their inhabitants. Everyone within a given region receives the same income, but personal incomes differ from region to region. An immigrant to Alfaland would be assigned at random, with equal probability, to any one of these five regions. Such a person would therefore have a 20% chance of being

• n any one of five income levels.

Two economic policy proposals A and B are being considered for implementation in Alfaland next year. It is known that - apart from their impact

• n personal incomes - the two policies would have the same effect on the
• population. The impact upon the regions’ incomes would depend upon the

particular state of the Alfaland economy at the time the policy (A or B) is to be introduced. In each of questions (1) to (6) two alternative lists of incomes A and B (in Alfaland local currency) are given. Each of these pairs represents the outcomes of the A-policy and the B-policy on the five regions in each of six different situations in which Alfaland might find itself next year. In each case please state which policy you consider would result in higher risk for a person immigrating to Alfaland by circling A or B. If you consider that the two policies will result in the same risk to a potential immigrant then circle both A and B.

Features of Questionnaire: 1

• Two questionnaires for the price of one: risk

questionnaire generated from inequality by Ctrl-H

• Students ranked six pairs of income vectors (A and

B) in terms of risk and inequality

• For each question B was obtained from A by an

equalising income transfer from a rich to a poor region

• According to the Principle of Transfers, an

equalising transfer reduces risk/inequality; this implies that A is riskier/more unequal than B in all six questions

Questionnaire: Numerical Part

1) A = (2, 5, 9, 20, 30) B = (2, 6, 8, 20, 30) 2) A = (2, 5, 9, 20, 30) B = (3, 5, 9, 20, 29) 3) A = (2, 5, 9, 20, 30) B = (2, 6, 9, 20, 29) 4) A = (2, 5, 9, 20, 30) B = (2, 10, 9, 15, 30) 5) A = (10, 10, 10, 10, 30) B = (10, 10, 10, 20, 20) 6) A = (2, 5, 9, 20, 30) B = (2, 6, 9, 19, 30)

Features of Questionnaire 2

• Check the numerical responses with a verbal

question

• Using the same story we present the issue of the

principle of transfers

• Then see if they want to change their minds on the

numerical problems

Questionnaire: Verbal Part

r i s k r i s k r i s k r i s k

…and for risk

Questionnaire: A Check

Data Set: Students by Country

Total Inequality Risk Argentina Australia Belgium Germany Israel Sweden UK 74 124 137 264 180 63 311 38 62 87 126 93 31 150 36 62 50 138 87 32 161 OVERALL 1150 475 441 Number Total Inequality Risk 8 8 8 14 13 14 15 18 11 23 21 24 20 20 20 7 7 7 34 32 37 100 100 100 Percentage

Students from 7 countries answering inequality and risk questionnaires in equal proportions

The Questionnaire: Personal Characteristics

Finally, we would be grateful for some information about yourself:

• Are you male or female?

M/F

• What is your age?

_____ years

• What is your special subject of study?

__________

• Were you employed before university?

Yes / No

• How would you rate your political views? Please put

a

• n this scale.
• How would you rate your family’s income in 1990?

Please put a on this scale.

• How would you rate your own income prospects in

the year 2010? Please put a

• n this scale.

“very Poor ” “very Rich ” “extreme left” “extreme right” “very Poor ” “very Rich ”

Personal Characteristics of Students

Male Economic Subject Age Employment Political Opinion Income 1990 Income Change 2010 Definition Dummy Dummy Years Dummy 1-7 (right) 1-7, + 1-7, + P-value 66 46 32 48 39 35 75 Mean SD 0.63 0.48 0.29 0.45 22.9 4.4 0.43 0.50 4.0 1.1 4.4 1.0 0.7 1.2 Inequality Mean SD 0.61 0.49 0.30 0.46 23.2 4.0 0.45 0.50 4.0 1.1 4.3 1.1 0.7 1.4 Risk

Inequality and risk samples are similar across all personal characteristics

Equality in means across risk and inequality subgroup. Equality in means across risk and inequality subgroup. Equality in means across risk and inequality subgroup. Equality in means across risk and inequality subgroup.

Higher proportion of A responses for risk than inequality, and for male than female, especially for risk

Transfer Principle: Summary Statistics

Inequality Risk Consistency with Transfer Principle? Total 17 23 Male 21 31 Female 10 11

proportion of answer A in all questions (N=6918). proportion of answer A in all questions (N=6918).

Equalising Transfer Reduces Inequality? Total 59 61 Male 61 67 Female 57 53

proportion of students answering A in all six questions (N=1153). proportion of students answering A in all six questions (N=1153).

Regression Approach

• Consider equation of the form:
• Prob(answer A)= Φ(b1x1 +b2x2 +…+bnxn)
• Estimate this using probit if Φ is standard

normal

• Personal characteristics can be used as

dummies

Probit Regression of Response A

P-value 16 37 55 75 72 40 Coef P>|z| 0.06 1 0.10 0.00 63 0.02 35 0.00 52 0.00 75 0.01 19 Inequality Coef P>|z| 0.13 0.15 0.00 50 0.00 94

• 0.01

29 0.01 40 0.00 85 Risk Variable Male Economic Subject Age Employment Political opinion Income 1990 Income Change 2010 Explanatory variables include dummy variables for countries. Number of observations 6767.

Only “male” and “economic subject” lead to higher share of A responses, especially for risk

Equality of coefficients across subgroups. Equality of coefficients across subgroups.

Probit Regression of 6 x Response A

P>χ2 16 56 60 58 90 74 15 Coef P>|z| 0.12 1 0.10 9 0.00 90 0.02 54

• 0.01

45 0.00 88 0.02 21 Inequality Variable Male Economic Subject Age Employment Political opinion Income 1990 Income Change 2010 Number of observations 1153. Explanatory variables include dummy variables for countries.

As before: male and economic subject lead to higher share of A responses, especially for risk

Coef P>|z| 0.21 0.14 1 0.01 41

• 0.01

88

• 0.01

33 0.00 76

• 0.01

48 Risk

Equality of coefficients across subgroups. Equality of coefficients across subgroups.

Numerical Questions: Detail

1) A = (2, 5, 9, 20, 30) B = (2, 6, 8, 20, 30) 2) A = (2, 5, 9, 20, 30) B = (3, 5, 9, 20, 29) 3) A = (2, 5, 9, 20, 30) B = (2, 6, 9, 20, 29) 4) A = (2, 5, 9, 20, 30) B = (2, 10, 9, 15, 30) 5) A = (10, 10, 10, 10, 30) B = (10, 10, 10, 20, 20) 6) A = (2, 5, 9, 20, 30) B = (2, 6, 9, 19, 30)

Type of Income Transfer: Summary

RISK Question 1 49 55 39 Question 2 68 74 60 Question 3 59 66 52 Question 4 68 74 60 Question 5 67 71 60 Question 6 55 62 46 Total Male Female INEQUALITY Question 1 40 44 34 Question 2 74 74 74 Question 3 61 62 60 Question 4 60 64 56 Question 5 72 70 76 Question 6 48 53 42

Higher share of response A if transfer involves richest region (Q2 and Q5), is to poorest region (Q2); lower share if transfers among middle-ranking regions (Q1 and Q6)

Percentage of “A” answers. Percentage of “A” answers.

Familiar pattern: male and economic subject are usually significant, leading to higher share of response A. Coefficients are higher for risk

Transfer Type: Probits of Response A

Variable QUESTION 1 Male Economic Subject QUESTION 2 Male Economic Subject QUESTION 3 Male Economic Subject QUESTION 4 Male Economic Subject QUESTION 5 Male Economic Subject QUESTION 6 Male Economic Subject

P>χ2

68 69 5 84 17 63 55 9 1 21 31 59 Coef P>|z| 0.13 1 0.11 8 0.00 99 0.11 4 0.05 31 0.14 2 0.09 4 0.06 27

• 0.07

12 0.06 31 0.08 8 0.14 3 Inequality Coef P>|z| 0.18 0.15 2 0.11 1 0.12 1 0.13 0.18 0.12 1 0.18 0.09 4 0.14 0.15 0.10 10 Risk Equality of coefficients across subgroups. Equality of coefficients across subgroups.

What if we had used welfare?

• Following Atkinson, inequality rankings

should derive from social welfare rankings

• Likewise risk rankings should derive from

preference rankings

• What would have happened if we changed

the context of the question?

Type of Income Transfer: Summary

Preference Question 1 44 44 Question 2 72 68 Question 3 57 54 Question 4 65 54 Question 5 65 67 Question 6 58 51 Male Female Soc Welfare Question 1 58 53 Question 2 72 70 Question 3 63 60 Question 4 60 51 Question 5 72 66 Question 6 55 48

Higher conventional response if transfer involves richest region (Q2 and Q5), is to poorest region (Q2); lower share if transfers among middle-ranking regions (Q1 and Q6)

Percentage of “A” answers. Percentage of “A” answers.

Conclusions: Numerical Part

• More male than female students view equalising transfer as

risk/inequality reducing, on each question separately

• Also true for consistency with Principle of Transfers (AAAAAA)
• Male/female differences are larger for risk than inequality
• Probit regressions confirm pattern while controlling for other

personal characteristics

• Respondents are more likely to view equalising transfers as

risk/inequality reducing when occurring from upper to lower end

• f distribution rather than ‘within’ the distribution
• The transfer type matters more for female and for risk

Main finding: gender matters for attitudes towards risk and inequality, and matters more for risk than inequality

Reminder of Verbal Part

The Verbal Responses: 1

All respondents both ineq risk a 8.7% 8.7% 8.7% b 29.3% 30.6% 27.9% c 17.5% 17.3% 18.0% d 23.6% 22.8% 24.4% e 8.7% 8.5% 8.9% at least d 27.9% 27.7% 28.1% The (strict) orthodox answer is d, but less than a quarter of respondents chose that. Even the “lenient” orthodox answer gets the support of less than 30 percent of the respondents. The most favoured response (particularly for inequality) is the “Pigou” answer b.

The Verbal Responses: 2

males both ineq risk a 8.3% 8.2% 8.3% b 30.0% 31.6% 28.2% c 14.6% 14.8% 14.4% d 24.9% 22.2% 27.9% e 9.1% 9.8% 8.3% at least d 29.5% 27.8% 31.4% Males answer more conventionally on risk than on inequality

The Verbal Responses: 3

females both ineq risk a 9.0% 8.7% 9.2% b 28.6% 29.6% 27.5% c 22.1% 20.9% 23.5% d 22.0% 24.3% 19.4% e 7.2% 5.3% 9.2% at least d 25.9% 28.2% 23.5% Females answer more conventionally on inequality than on risk

The Verbal Responses: 4

Inequality All males females a 8.7% 8.3% 8.7% b 30.6% 31.7% 29.6% c 17.0% 14.8% 20.9% d 22.8% 22.2% 24.3% e 8.5% 9.8% 5.3% at least d 27.7% 27.8% 28.2%

Females answer more conventionally than males on inequality!

The Verbal Responses: 5

Risk All males females a 8.7% 8.3% 9.2% b 27.9% 28.2% 27.5% c 18.0 % 14.4% 23.5% d 24.4% 27.8% 19.4% e 8.9% 8.3% 9.2% at least d 28.1% 31.4% 23.5%

Males answer more conventionally than females on risk

Probit Regression of Response d

P>χ2 10 4 1 49 16 57 4 Coef P>|z|

• 0.02

56 0.01 81 0.01 1

• 0.05

18

• 0.01

73 0.00 94

• 0.02

23 Inequality Variable Male Economic Subject Age Employment Political opinion Income 1990 Income Change 2010 Number of observations 1153. Explanatory variables include dummy variables for countries.

For the orthodox answer on the verbal question gender is not significant, but economic subject is important for risk

Coef P>|z| 0.07 9 0.18

• 0.00

38

• 0.02

69

• 0.03

3 0.01 49 0.04 4 Risk

Equality of coefficients across subgroups. Equality of coefficients across subgroups.

Conclusions: Verbal Part

• People favour the “Pigou-but-not-Dalton”

response

• The conventional interpretation of the

transfer principle is made by less than 25 percent of respondents

• Gender is not such a good predictor for
• rthodoxy, but there are remarkable

differences in gender responses as between inequality and risk.

Where next?

• Clearly we could apply the same

methodology to poverty orderings

• When we do we find even less “support” for

the transfer principle.

• People see it in terms of

a straight “headcount” approach

• People see it in terms of

a straight “headcount” approach

• We can also examine other individual

axioms in both inequality and poverty.

• But maybe we should do something more

fundamental

Where next?

Are the results an artefact

• …of the context?
• …of the respondent population?
• …or of the design?
• … or of the medium?
• No – see the results on

Social welfare and Poverty

• No – see the results on

Social welfare and Poverty

• More difficult. But we have

plans for ordinary - and extraordinary - people

• More difficult. But we have

plans for ordinary - and extraordinary - people

• Our next move…
• …to the Internet
• Our next move…
• …to the Internet

Characteristics by Gender: Inequality

Male students are older, have more work experience, are more conservative, and have a higher family income in 1990

Economic Subject Age Employment Political Opinion Income 1990 Income Change 2010 75 2 2 11 P-value 0.30 0.46 23.4 5.0 0.5 0.5 4.1 1.1 4.4 1.0 0.8 1.2 Mean SD Male 0.28 0.45 22.1 3.3 0.3 0.5 3.9 1.0 4.2 1.1 0.6 1.3 Mean SD Female

Equality in means across risk and inequality subgroup. Equality in means across risk and inequality subgroup.

Characteristics by Gender: Risk

(Broadly same as for inequality subsample)

Economic Subject 0.33 0.47 0.27 0.44 10 Age 23.8 4.5 22.3 2.8 Employment 0.48 0.50 0.36 0.48 Political Opinion 4.0 1.1 3.9 1.0 8 Income 1990 4.3 1.2 4.2 0.9 66 Income Change 2010 0.73 1.4 0.48 1.2 P-value* Mean SD Mean SD Male Female