Lorenz and Polarization Orderings of the Double-Pareto Lognormal Distribution and Other Size Distributions

Abstract

Polarization indices such as the Foster-Wolfson index have been developed to measure the extent of clustering in a few classes with wide gaps between them in terms of income distribution. However, Zhang and Kanbur (2001) failed to empirically find clear differences between polarization and inequality indices in the measurement of intertemporal distributional changes. This paper addresses this ‘distinction' problem on the level of the respective underlying stochastic orders, the polarization order (PO) in distributions divided into two nonoverlapping classes and the Lorenz order (LO) of inequality in distributions. More specifically, this paper investigates whether a distribution F can be either more or less polarized than a distribution H in terms of the PO if F is more unequal than H in terms of the LO. Furthermore, this paper derives conditions for the LO and PO of the double-Pareto lognormal (dPLN) distribution. The derived conditions are applicable to sensitivity analyses of inequality and polarization indices with respect to distributional changes. From this application, a suggestion for appropriate two-class polarization indices is made.