🤖 AI Summary
This study addresses income inequality from the perspective of equality of opportunity, distinguishing between inequality arising from circumstances beyond individual control and disparities stemming from voluntary risk-taking. To this end, it develops an axiomatic framework that first computes expected utilities within groups sharing identical environmental characteristics and then aggregates group welfare using a one-parameter opportunity-sensitive social welfare function. Integrating ambiguity decision theory, expected utility analysis, and mean-divergence decomposition, the framework introduces an opportunity stochastic dominance criterion and yields a decomposable measure of overall inequality into between-group opportunity inequality and within-group risk-related dispersion. The analysis derives multiple equivalent representations of the social welfare function, offering a practical toolkit for normative welfare evaluation and inequality decomposition.
📝 Abstract
We develop an axiomatic framework to evaluate income distributions from the perspective of an opportunity-egalitarian social planner. Building on a formal link with the literature on decision theory under ambiguity, we characterize a class of opportunity-sensitive social welfare functions based on a two-stage evaluation: the planner first computes the expected utility of income within each social type, where types consist of individuals sharing the same circumstances beyond their control, and then aggregates these type-specific welfare levels through a transformation reflecting aversion to inequality of opportunity. The evaluation is governed by a single parameter. We provide equivalent representations of the social welfare function, including a mean-divergence form that separates an efficiency term from an inequality term, and we establish an opportunity stochastic dominance criterion. Finally, we derive inequality measures that decompose overall inequality into within-group risk and between-group inequality of opportunity, providing a tractable basis for normative welfare analysis.