Ravi Kanbur - Equality of opportunity

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Ravi Kanbur - Equality of opportunityPresentation given at conference on 17/18 November in honour of Sir Richard Jolly

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  • 1.Equality of Opportunity:Circumstance, Effort and Luck Presentation at Conference in Honour of Richard Jolly IDS, November 18, 2011 Ravi Kanburwww.kanbur.dyson.cornell.edu

2. Outline The Paes de Barros et. al. (2009) Measurement ofInequality of Opportunity, following from WorldDevelopment Report (2005) and Roemers (1998)distinction between circumstance and effort. P de B (2009) is fine in practice. Policyprescriptions look great to egalitarians. Methodused is standard. BUT, two issues of principle. What happens when one persons effort becomesanother persons circumstance? What happens when luck determines differencebetween opportunity and outcomes? 3. The Method (1) When some of the inequality observed in theoutcome of interest can be attributed to exogenouscircumstances, such as a persons gender or familybackground, it reflects inequality of opportunity in asociety. In an ideal world, inequality in outcomes shouldreflect only differences in effort and choicesindividuals make, as well as luck. (Paes de Barros etal, 2009). 4. The Method (2) This follows Roemer (1998). Circumstanceversus Effort. More on Luck later. 5. The Method (3) Circumstance Variables actually used in Paesde Barros et. al. (2009): Gender Race/Ethnicity Birthplace Mothers Education Fathers Education Fathers Occupation 6. The Method (4) Decompose inequality of the outcome(income or consumption) into within groupand between group components. The difference in outcomes between cells canbe attributed to inequality of opportunity,while the differences within cells can beconsidered the result of effort or luck. 7. The Method (5) Inequality of opportunity was assessed forlabor earnings, household income, andhousehold consumption. It was estimated to account for between one-fifth and one half of overall inequality in theseven Latin American countries reviewed. 8. Results (1) Policy Conclusions: Inequality of Opportunity is important (one fifthto one half, and this is a lower bound). Major policy strategy to reduce it is to addressdiscrimination between genders, ethnicities,locations etc. across a range of interventions. 9. Results (2) So, policy conclusions look good to egalitarians. Methods look good to inequality economists. Infact we have been using them for decades. Inequality decompositions across gender,ethnicities, region etc are bread and butter fareby now. New interpretations of between groupcomponent have also been attempted eg Kanbur-Zhang (2001) have interpreted it aspolarization. Also, Kanbur (2006). 10. Two Issues of Principle In an ideal world, inequality in outcomes shouldreflect only differences in effort and choicesindividuals make, as well as luck. (Paes deBarros, 2009). Is this right? Two issues: What if one persons effort leads to anotherpersons circumstance? Is inequality brought about by luck justifiable, ienot a legitimate object for policy intervention? 11. Circumstance and Effort (1) Intergenerationalities (Kanbur, 2010) for I, the Lord your God, am a jealous God,visiting the iniquity of the fathers on thechildren, and on the third and the fourthgenerations of those who hate Me "Fathers shall not be put to death for theirsons, nor shall sons be put to death for theirfathers; everyone shall be put to death for hisown sin." 12. Circumstance and Effort (2) If parents choose to exert little effort and indulgeprofligate tastes, so they do not have sufficientresources to educate their children, thecircumstances doctrine would say the educationoutcome for the children should be corrected. But this would surely violate the effort and tastesdoctrine, which would say that the outcomes are fineas they are. If our moral intuitions side with the first bullet above,what then is left of the effort and tastes componentof the distinction between inequality of opportunityand inequality of outcome? 13. Luck (1) Consider a group of individuals who initially have equalendowments and who agree voluntarily to enter a lottery withvery unequal prizes. The resultant inequality of income issurely required to permit the individuals in question to makethe most of their initial equalityMuch of the inequality ofincome produced by payment in accordance with the productreflects equalizing difference or the satisfaction of menstastes for uncertaintyRedistribution of income after theevent is equivalent to denying them the opportunity to enterthe lottery. (Milton Friedman, Capitalism and Freedom, 1962) 14. Luck (2) So, consider two individuals, A and B, absolutelyidentical in every respect. (Kanbur, 1987). There is a cake. Instead of dividing it equally theydecide to toss for it. A wins, B loses. There is equality ex ante, inequality ex post. Is the ex post inequality a justifiable argument forredistribution? If you say yes, you are an outcomes person. Ifyou say no you are an opportunities person. 15. Luck (3) One way to interpret the Roemer and post-Roemerdevelopments is as modifying the sharp setting of theFriedman thought experiment, by saying thatindividuals are not identical, that there are structuralinequalities, and that observed inequalities reflectthese structural inequalities. BUT this concedes the basic premise, that outcomes asa result of random shocks (even if the lottery is freelychosen) are out of bounds for redistribution. This thinend of the wedge should be blocked by egalitarians. 16. Conclusion P de B is fine in practice. Policy prescriptionslook great to egalitarians. Method used isstandard. BUT, two issues of principle. What happens when one persons effortbecomes another persons circumstance? What happens when luck determinesdifference between opportunity andoutcomes? 17. Some ReferencesFriedman, M. 1962. Capitalism and Freedom. Chicago: University of Chicago Press.Kanbur, Ravi. 1987. The Standard of Living: Uncertainty, Inequality and Opportunity,in Geoffrey Hawthorn (ed.) The Standard of Living. Cambridge: Cambridgeuniversity Press.Kanbur, Ravi. 2006. The Policy Significance of Inequality Decompositions. Journal ofEconomic Inequality. Vol. 4, No. 3, December, pp 367-374.Kanbur, Ravi. 2010. Intergenerationalities: Some Educational Questions on Quality,Quantity and Opportunity, Humanum: Revista Latino Americana De DesarrolloHumane, No. 1, July 2010.What Difference Do Polarization Measures Make?" (with X. Zhang), Journal ofDevelopment Studies, Vol. 37, No. 3, pp. 85-98, February 2001.Paes de Barros, Ricardo, Francisco H.H. Ferreira, Jose R. Molinas Vega and JaimeSaavedra Chanduvi. 2009. Measuring Inequality of Opporutnities in Latin Americaand the Caribbean. World Bank, Washington, D.C.Roemer, John E. 1998. Equality of Opportunity. Cambridge, Mass.: Harvard UniversityPress.World Bank. 2005. World Development Report 2006: Equity and Development.Washington, DC: The World Bank and Oxford University Press.