Social Welfare Analysis of Income Distributions: Ranking Income Distributions with Generalised Lorenz Curves

This module illustrates how Generalised Lorenz (GL) Curves can be used to identify the best income distribution on social welfare grounds, within a set of alternative income distributions generated by different policy options, in many of the cases where ordinary Lorenz curves fail to work After illustrating some pitfalls of ordinary Lorenz Curves, a cursory presentation of the step-by-step procedure to check for Generalised Lorenz dominance and to infer welfare judgements is provided and demonstrated with some simple numerical examples. This module also points out the limitations of the GL approach whenever GL curves cross each other. In addition, it illustrates the need, in some cases, to further restrict the family of admissible Social Welfare Functions (SWF) if a unanimous consensus about the ranking of a given set of income distributions has to be obtained. References to applications in a real country case, references to complementary EASYPol modules, notes for trainers and complementary capacity building facilities, are also provided herewith.