Lower and upper bound estimates of inequality of opportunity for emerging economies

Paul Hufe,Daniel Weishaar,Andreas Peichl

doi:10.1007/s00355-021-01362-7

Abstract

Equality of opportunity is an important normative ideal of distributive justice. In spite of its wide acceptance and economic relevance, standard estimation approaches suffer from data limitations that can lead to both downward and upward biased estimates of inequality of opportunity. These shortcomings may be particularly pronounced for emerging economies in which comprehensive household survey data of sufficient sample size is often unavailable. In this paper, we assess the extent of upward and downward bias in inequality of opportunity estimates for a set of twelve emerging economies. Our findings suggest strongly downward biased estimates of inequality of opportunity in these countries. To the contrary, there is little scope for upward bias. By bounding inequality of opportunity from above, we address recent critiques that worry about the prevalence of downward biased estimates and the ensuing possibility to downplay the normative significance of inequality.

Highlights

Equality of opportunity (EOp) is an ideal of distributive justice that garners widespread public support and is plausibly related to macro-economic indicators of development (Marrero and Rodríguez 2013; Ferreira et al 2018; Aiyar and Ebeke 2019; Cappelen et al 2007; Alesina et al 2018)
We address the uncertainty around empirical inequality of opportunity (IOp) estimates by drawing on longitudinal household surveys from twelve emerging economies which enable us to estimate both lower bound (LB) and upper bound (UB) measures of IOp
Instead—and in line with the theoretical reasoning of Ferreira and Gignoux (2011)—the standard approach recovers estimates close to the lower bound (LB) estimate in all countries under consideration. Note that this result stands in contrast to recent evidence for European countries suggesting that the standard approach overestimates lower bound IOp by up to 300% (Brunori et al 2018, 2019b)

Summary

Introduction

Equality of opportunity (EOp) is an ideal of distributive justice that garners widespread public support and is plausibly related to macro-economic indicators of development (Marrero and Rodríguez 2013; Ferreira et al 2018; Aiyar and Ebeke 2019; Cappelen et al 2007; Alesina et al 2018). Limitations in the underlying data sources lead to both upward and downward biased estimates of inequality of opportunity (IOp). Both biases are potentially large in emerging countries where the data quality is arguably worse than in industrialized economies. Emerging economies may again be susceptible to such upward bias in standard IOp estimates since the sample sizes of available household surveys tend to be comparatively small. The large distance between the standard estimate and the upper bound estimate in emerging economies emphasizes the concern of providing misleading reference points to policymakers who could use downward-biased estimates of IOp to downplay the.

Conceptual framework

Results

Conclusion

Method