Why not consider that being absolutely poor is worse than being only relatively poor?
Journal of Public Economics (2017) 152, 79-92
This paper was awarded the LAVG prize (best paper from young researcher) at the 2017 ASSET conference.
I study income poverty indices in a framework considering two poverty lines: one absolute line capturing subsistence and one relative line capturing social exclusion. I show that poverty indices accounting for these two lines should be hierarchical additive. Hierarchical additive indices grant a form of priority to subsistence: they always implicitly consider that absolutely poor individuals are worse-off than relatively poor individuals. Importantly, classical additive indices are not hierarchical. As a result, they yield debatable poverty comparisons of societies with different standards of living. I derive a new hierarchical index that generalizes the ubiquitous Head-Count Ratio. This index sums the fraction of absolutely poor individuals with the fraction of relatively poor individuals multiplied by an endogenous weight. An empirical application illustrates how to apply the new index and contrasts its poverty comparisons with those obtained using the extreme poverty measure of the World Bank.
“Too young to die”. Deprivation Measures combining poverty and premature mortality (with Jean-Marie Baland and Guilhem Cassan) + Online Appendix.
Most measures of deprivation concentrate on deprivation among the living population and, thus, ignore premature mortality. This omission leads to a severe bias in the evaluation of deprivation. We propose three different measures that combine information on poverty and premature mortality of a population in a meaningful manner. These indices are consistent and satisfy a number of desirable properties unmet by all other measures combining early mortality and poverty. Moreover, these measures are readily computable with available data and easily interpretable. We show that omitting premature mortality leads to an underestimation of total deprivation of at least 25% at the world level. We also show that the ranking in terms of deprivation of countries is substantially changed with our measures, and that our understanding of the evolution of countries’ deprivation may be reversed when taking premature mortality into account.
Manipulability and tie-breaking in constrained school choice
(with Martin Van der Linden) – R&R at Journal of Economic Theory
In constrained school choice mechanisms, students can only rank a subset of the schools they could potentially access. We characterize dominant and undominated strategies in the constrained Boston (BOS) and deferred acceptance (DA) mechanisms. Using our characterization of dominant strategies we show that in constrained DA, the single tie-breaking rule outperforms the multiple tie-breaking rule in terms of both manipulability and stability. We also show that DA is less manipulable than constrained BOS in the sense of Arribillaga and Massó (2015). Using our characterizations of undominated strategies, we derive advice for the students and show that more strategies can be excluded on the basis of dominance in constrained DA than in constrained BOS.
School choice mechanisms are typically constrained, with students allowed to report preferences on a limited number of schools only. Under constraints, even the deferred acceptance mechanism (DA) is manipulable and it is unclear how students should play. We provide advice by characterizing undominated strategies for the constrained versions of both DA and the Boston mechanism (BOS). We show that domination alone excludes more strategies in constrained DA than in constrained BOS. We also characterize “safe” and “maximin” strategies that risk- averse students might favor. These strategies achieve higher welfare and are more often available in constrained DA than in constrained BOS.
Disambiguation of Ellsberg Equilibria in 2×2 Normal Form Games
(with Frank Riedel) – R&R at Economic Theory
Riedel and Sass (2013) study complete information normal form games in which ambiguity averse players use ambiguous randomization strategies, in addition to pure and mixed strategies. The solution concept they propose, the Ellsberg equilibrium, is a coarsening of the classical Nash equilibrium. We provide a foundation of the new equilibrium concept in the spirit of Harsanyi. We prove an extension of the Purification Theorem for 2×2 normal form games. Our result implies that any Ellsberg equilibrium of such game is the limit case of a mixed strategy equilibrium in a disturbed version of the game for which payoffs are ambiguously disturbed.
The Boston mechanism (BOS) is widely used for the assignment of students to schools. The major drawback of BOS is its severe manipulability. We propose a new indirect matching mechanism (UPBOS) that is a slight modification of BOS. UPBOS is less manipulable than BOS in two important ways: (i) students always have a best reply featuring truthful reported preference, i.e. UPBOS is not manipulable in the sense of Pathak and Sonmez (2013) and (ii) rational students avoid particular re-rankings that are typical in BOS. The lower manipulability of UPBOS helps reaching more efficient assignments than those reached by BOS. UPBOS generalizes to a class of mechanisms whose members are even less manipulable than UPBOS.
Evolution of income poverty under unequal growth: Settling the dispute between absolutists and relativists. (with Mery Ferrando)
We study the impact on income poverty of unequal growth experienced in the US over 1989-2013 using a new measure of poverty. This measure accounts for both the relative and absolute aspects of income poverty. It depends on a key normative parameter that defines how much weight is given to each of these two aspects. The preferred parameter value for an absolutist moral observer lies at one extreme of the parameter range, whereas that of a relativist observer lies at the other extreme. Under unequal growth, absolutists often disagree with relativists. The former typically consider that poverty decreases and the latter that poverty increases. We first develop simple theoretical conditions under which the poverty judgments obtained with our measure are fully robust to the choice of its normative parameter. For non-robust cases, we derive a simple formula returning the threshold parameter value at which the judgment is reversed. We then apply our measure to study the evolution of poverty in the US over the recent period of unequal growth. Interestingly, poverty judgments are largely robust to the choice of the normative parameter.
In Europe poverty is usually measured with the at-risk-of-poverty indicator which defines the poverty threshold as 60 per cent of national median income. With this indicator, poverty seems to be lower in some ‘poor’ EU countries than in some of the richest EU Member States. Also, when the median income changes quickly, the evolution of poverty as shown by the indicator can be counterintuitive, for instance resulting in stagnation or even a decrease in poverty when median incomes fall and living conditions of the poor deteriorate. In this article we propose a new poverty indicator, the Poverty Gap Ratio with priority to the pan-European poor (PGR-PAN) which is not subject to these limitations. On the basis of EU-SILC data we show that our indicator results in results that are in better agreement with intuitive notions about poverty within the EU and captures more adequately changes as well as cross-national differences in living standards.
We introduce a new criterion to compare the properties of mechanisms when the solution concept used induces multiple solutions. Our criterion generalizes previous approaches in the literature. We use our criterion to compare the stability of constrained versions of the Boston (BOS) and deferred acceptance (DA) school choice mechanisms in which students can only rank a subset of the schools they could potentially access. When students play a Nash equilibrium, we show that there is a stability cost to increasing the number of schools students can rank in DA. On the other hand, when students only play undominated strategies, increasing the number of schools students can rank increases stability. We find similar results for BOS. We also compare BOS and DA. Whatever the number of schools students can rank, we find that BOS is more stable than DA in Nash equilibrium, but less stable in undominated strategies.
WORK IN PROGRESS:
Fair inheritance taxation (with François Maniquet)