This paper establishes the principles that should govern the welfare and inequality analysis of heterogeneous income distributions. Two basic criteria – the ‘equity preference’ condition and the ‘compensation principle’ – are shown to be fundamentally incompatible. The paper favours...

Typical welfare and inequality measures are required to be Lorenz consistent which guarantees that inequality decreases and welfare increases as a result of a progressive transfer. We explore the implications for welfare and inequality measurement of substituting the weaker absolute...

Typical welfare and inequality measures are required to be Lorenz consistent which guarantees that inequality decreases and welfare increases as a result of a progressive transfer. We explore the implications for welfare and inequality measurement of substituting the weaker absolute...