Classical inequality indices, welfare and illfare functions, and the dual decomposition

In the traditional framework, social welfare functions depend on the mean income and on the income inequality. An alternative illfare framework has been developed to take into account the disutility of unfavorable variables. The illfare level is assumed to increase with the inequality of the distribution. In some social and economic fields, such as those related to employment, health, education, or deprivation, the characteristics of the individuals in the population are represented by bounded variables, which encode either achievements or shortfalls. Accordingly, both the social welfare and the social illfare levels may be assessed depending on the framework we focus on. In this paper we propose a unified dual framework in which welfare and illfare levels can both be investigated and analyzed in a natural way. The dual framework leads to the consistent measurement of achievements and shortfalls, thereby overcoming one important difficulty of the traditional approach, in which the focus on achievements or shortfalls often leads to different inequality rankings. A number of welfare functions associated with inequality indices are OWA operators. Specifically this paper considers the welfare functions associated with the classical inequality measures due to Gini, Bonferroni, and De Vergottini. These three indices incorporate different value judgments in the measurement of inequality, leading to different behavior under income transfers between individuals in the population. In the bounded variables representation, we examine the dual decomposition and the orness degree of the three classical welfare/illfare functions in the standard framework of aggregation functions on the [0, 1]n domain. The dual decomposition of each welfare/illfare function into a self-dual central index and an anti-self-dual inequality index leads to the consistent measurement of achievements and shortfalls. © 2013 Elsevier B.V. All rights reserved.