Ignorance, lotteries, and measures of economic inequality
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Towards further enhancing the conceptual unification of the literature on risk and inequality, we demonstrate that a number of existing inequality indices arise naturally from a Harsanyi-inspired model of choice under risk, whereby individuals act as expected (reference-dependent) utility maximizers in the face of an income quantile lottery. Among other things, our reformulation gives rise to a novel reinterpretation of these classical indices as measures of the desirability of redistribution in society.
KeywordsRedistribution Inequality Lotteries Veil of ignorance Tilted lotteries Lorenz curve Atkinson index Donaldson-Weymark index Gini index
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