Samuel Bowles and Wendy Carlin

Paper #: 2017-02-003

Some of the dimensions along which we measure inequality are best conceived of as individual attributes that is, something that people simply have more or less of, like height. But on both descriptive and normative grounds other dimensions are best conceived of as differences between people. Economic inequalities – in wealth or income, for example – are in this latter class. Treating an economy as a complete undirected network the edges of which (not the nodes) are the fundamental data of the measurement allows a simple derivation of a standard inequality measure – the Gini coefficient – that is both intuitive and ranges over the unit interval irrespective of population size, thus avoiding two shortcomings of the conventional difference-based algorithm for calculating the Gini.  We also illustrate the application of the Gini coefficient to settings in which individuals are members of homogeneous classes so the only economic differences are on the edges of a bipartite graph. Intuitions readily understood from these applications are given.