Inequality of Opportunity
Economists often talk about two types of inequality – inequality of outcomes (such as income inequality) and inequality of opportunity.
a) (15 rp) Give an example of inequality of opportunity. Explain why inequality of opportunity, as opposed to inequality of outcomes, is considered detrimental for economic efficiency and social welfare.
Ответ
For example, a child of wealthy parents may be more likely to get a high-paying job than a child of poorer parents because it is easier for the former to get into an elite university or because the wealthier parents have better connections.
To demonstrate that inequality of opportunity can be bad for social welfare, consider the following extremely stylized example. Suppose there are two types of jobs – low-skill and high-skill. Any person working in a low-skill job produces one unit of output. The output of a person in a high-skill job is equal to her productivity . Suppose a person from a low-income family happens to have higher productivity than a person from a rich family: . Ideally, the society would want to let the former have the high-skill job (after training, if necessary), thus enjoying the total output of . However, if the poor is barred from the high-skill job due to inequality of opportunity, the total output will be , which is lower. The moral is that inequality of opportunity acts as a constraint for a society seeking an optimal allocation of resources.
In contrast, inequality of outcomes can be just a natural consequence of different abilities and different levels of effort chosen by people, even if the allocation of resources is optimal.
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5 points. An adequate example that captures the essence of inequality of opportunity. No partial credit.
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10 points. A reasoned explanation of the detrimental consequences of inequality of opportunity. 5 points if the argument is incomplete or includes minor mistakes.
b) (15 rp) There are several well-established measures of income inequality, such as the Gini index. How would you go about measuring inequality of opportunity in a country?
Ответ
A popular approach to measuring inequality of opportunity is to measure the extent to which parents' income or wealth determines their children's income of wealth. For example, one can consider the parents who are within 10% richest people and ask which share of their children is also within 10% richest people. Or the other way around: one may ask which share of 10% poorest people's children remains in the bottom 10% of the income distribution. The higher these shares, the higher is the inequality of opportunity. Indeed, if the rich remain rich and poor remain poor, the inequality of opportunity must be severe. And vice-versa: if children's income depends little on that of their parents', this probably means that the opportunities are close to equal.
One can find more information on this topic, as well as research attempting to compute measures of inequality of opportunity for the US at https://opportunityinsights.org
15, 10, 5 or 0 points. Grading takes into consideration the proposed measure, the reasoning behind it, and its feasibility. Partial credit may also indicate minor mistakes or incorrect arguments.