Equity, efficiency and inequality traps: A research agenda

Abstract

This paper discusses a research agenda that arises from unanswered questions and unresolved issues considered in the World Bank's World Development Report 2006: Equity and Development. After formalizing the key concepts of equity; equality of opportunity; and efficiency, and proposing a definition for an equitable development policy, the paper discusses the concept of inequality traps, around which the research agenda is structured. Four broad groups of research questions are highlighted: those revolving around the measurement of inequality of opportunity and the diagnostics for the existence of an inequality trap; those dealing with the causes of inequality traps; the quantification of their efficiency costs; and those related to how institutions (including governments) evolve to overcome inequality traps

Measuring long-term inequality of opportunity

“…Finally, evaluate the distribution of long-term opportunity sets. This is essentially the approach proposed by Bourguignon et al (2007): They first aggregate individuals in order to evaluate the opportunity set at a given time t. Successively they introduce some criteria to rank different distributions of time streams of opportunity sets in terms of equality of opportunity. This approach is in fact declined in two different variants.…”

“…Alternatively, Bourguignon et al (2007) propose a long-term extension of the utilitarian version of EOp, according to which there is EOp if the long-term expected value of all types are equal. Hence, they first introduce a type evaluation function, according to which each type distribution (i.e., opportunity set) at a given period t is evaluated by the mean it  (this is the utilitarian evaluation); successively, they introduce time aggregator in order to obtain an expression of the long-term value of the opportunity set: For instance, ( )…”

“…In the ex ante (utilitarian) approach, we define EOp as equality in the expected permanent income for individuals with identical circumstances, which coincides with the approach of Bourguignon et al (2007) if and only if the mean permanent income for each type can be expressed as a weighted average of the period-specific mean incomes. In the ex post approach, we define EOp as equality of outcomes for individuals with the same effort, where both the outcome and the effort refer to a long-term perspective rather than to a snapshot.…”

“…2 A notable exception is Bourguignon et al (2007), which will be discussed in detail below. 3 We refer to the conceptualization of EOp proposed by philosophers such as Dworkin (1981a,b), Arneson (1989), Cohen (1989) and on the economic literature -initiated by Roemer (1993Roemer ( , 1998 -that has explored different ways in which the concept of equality of opportunity may be translated in formal economic models (see Fleurbaey 2008 for a survey).…”

“…Our paper proceeds by clarifying the differences between our framework and the method for measuring long-term EOp proposed by Bourguignon et al (2007). Section 2 describes our method for aggregating the income streams of individuals into comparable measures of permanent income.…”