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Wednesday, June 10, 2015

'Inequality of Opportunity: Useful Policy Construct or Will o’ the Wisp?'

Can economic opportunity be separated from economic outcomes?:

Inequality of opportunity as a policy construct: ...Concluding remarks
Any attempt to separate circumstances from effort – to identify that portion of the inequality of outcomes which is a legitimate target for redistribution – is fraught with empirical and conceptual difficulties.[4] Fine-grained distinctions between inequality of opportunity and inequality of outcomes do not hold water in practice, and we are likely to greatly underestimate inequality of opportunity and hence the need for intervention.
Further, what if one person’s effort becomes another person’s circumstance, as when income generated through parents’ effort provides a better start in life for some children? Or when freely made choices by one group of upper-income house buyers push up prices for others who may have lower incomes? Is it legitimate or is it not legitimate to intervene in this case?
These arguments support the case for generalised social protection in dimensions such as income, health and education, irrespective of whether the outcomes can be specifically attributed to circumstance or to effort.
The important questions then relate to what the best available policy instruments are for delivering this social protection, what effects they have on incentives, and how best they can be deployed. To be sure, we may make some Type I and Type II errors in doing so; we may penalize effort when we should not, and we may not fully compensate for circumstances when we should. But this is preferable to being frozen into perpetually underestimating the need for intervention by a focus on that will o’ the wisp, inequality of opportunity.

    Posted by on Wednesday, June 10, 2015 at 10:17 AM in Econometrics, Income Distribution | Permalink  Comments (18)


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