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The distribution of income, incomplete information and the rank and Pareto criteria

✍ Scribed by Rubin Saposnik

Publisher
Springer US
Year
1988
Tongue
English
Weight
373 KB
Volume
59
Category
Article
ISSN
0048-5829

No coin nor oath required. For personal study only.

✦ Synopsis

One income distribution dominates another according to the rank criterion if the income in each position, ordered from lowest to highest, is at least as great in the former distribution as the corresponding income in the latter, with the strict inequality holding at least once. Pareto dominance implies rank dominance, but not conversely. But rank dominance does imply Pareto dominance where agents are expected utility maximizers relative to subjective probability distributions that characterize incomplete information regarding agents' positions in income distributions. This suggests the rank criterion as a way of evaluating income distributions without resorting to interpersonal comparisons of utility.

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In order to study the phenomenon in detail that income distribution follows Pareto law, we analyze the database of high income companies in Japan. We find a quantitative relation between the average capital of the companies and the Pareto index. The larger the average capital becomes, the smaller th