On comparing heterogeneous populations: Is there really a conflict between the Pareto criterion and inequality aversion?.

Abstract

The incompatibility between the Pareto indifference criterion and a concern for greater equality in living standards of heterogenous populations (see, amongst others, Ebert, 1995, 1997, Ebert and Moyes, 2003 and Shorrocks, 1995) might come as a surprise, since both principles are reconcilable when people differ only in income (homogenous population). We present two families of welfare rankings --(i) single parameter extensions of the generalized Lorenz dominance rule and (ii) a subset of Weymark's (1981) generalized Ginis-- and show how and why these rules resolve the paradox.Heterogeneity; Welfare comparisons;