Project manager: Ingvild Almås

Project duration: 01.01.2016 - 07.05.2020

PROJECT DETAILS:

The traditional approach to measuring economic inequality consists of selecting a measure of real income and representing its distribution using the Lorenz curve or a summary scalar index, such as the Gini. Real income is typically constructed by adjusting nominal income for purchasing power. The agenda for this project is to extend the traditional approach in three directions.

First, new ways of measuring the allocation of resources within households are investigated. It is often the case - particularly in relatively poor countries - that information on nominal income is only available at the household level. Even if individual income is available, it may not reflect individual purchasing power as income pooling takes place within households. An appraisal of resource allocation within households (between adults and also children), is therefore needed. This project designs and applies new ways of identifying those, and studies the effect of targeted transfers, based on the matching of data from laboratory experiments, field experiments, and micro data on income and expenditures.

Second, this project acknowledges that people's preferences may deviate from a norm of perfect equality. Many people hold a norm that is different from the egalitarian norm which is inherent in standard inequality measurement. The project will study the development of such norms and how beliefs about the sources of inequality, e.g. whether gender differences are caused by biology, affect preferences for equalizing policies.

Third, the issue of price adjustment, which has stymied the measurement of global inequality, is addressed. Standard adjustments are not consistent with observed behavior: they ignore differences in consumer baskets due to non-homothetic and heterogeneous preferences, and some also ignore substitution as a response to relative price changes. New methods based on micro data and observed consumer behavior are applied to address these shortcomings.

The aim of this research project is to extend the traditional approach to inequality measurement in three directions:

1. To study, and find new ways of identifying, the distribution of resources within households. Part of the project will focus on identifying the welfare- and empowerment effects of targeted transfers.
2. To study preferences for redistributive policies. One aim is to identify how inequality acceptance develops from childhood to adolescence, and study the role of institutions. Another aim is to study beliefs about the sources of inequality and investigate the causal effect of beliefs on preferences.
3. To extend the literature on price indices by allowing for heterogeneity. The project aims at establishing economic theory foundations for international comparisons with particular focus on whether and how we can rationalize international comparisons when preferences are heterogenous.

Publications:

"The PPP Approach Revisited: A study of RMB valuation against the USD" (with Mandeep Grewal, Marielle Hvide and Serhat Ugurlu). Forthcoming in Journal of International Money and Finance.

"A Behaviour-based Approach to the Estimation of Poverty in India" (with A. Kjelsrud and R. Somanathan). Forthcoming in Scandinavian Journal of Economics.

"Measuring and Changing Control: Women's Empowerment and Targeted Transfers" (with A. Armand, O. Attanasio and P. Carneiro). Forthcoming in The Economic Journal.

"Rags and Riches: Relative Prices, Non-Homothetic Preferences, and Inequality in India" (with A. Kjelsrud). World Development, 2017.

WORKING PAPERS:

"The Cost of a Growth Miracle - Reassessing Poverty and Inequality Trends in China" (with Å. Johnsen). Revise and Resubmit, Review of Economic Dynamics. 

"Lost in Translation: What Do Engel Curves Tell Us About the Cost of Living?" (with T. Beatty and T. Crossley). Manuscript.

"Economic asymmetries in partnering: Empirical facts and theoretical foundations" (with A. Kotsadam, E. Moen and K. Røed). Manuscript.

"Global Income Inequality and Cost-of-Living Adjustment: The Geary-Allen World Accounts" (with E. Sørensen). Manuscript.

"The Income Elasticity for Nutrition: Evidence from Unconditional Cash Transfers in Kenya" (with J. Haushofer and J. Shapiro). Manuscript.

PART FINANCING: