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Lecture 10 0504 - Lecture 10 Inequality Why do we care and...

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Lecture 10 – Inequality: Why do we care and how do we measure it? 5/4/10 Business Today: Finish inequality o First part of Ch. 6 in PRL o Get back problem set 1 If you have a problem, write it up by Tuesday Answer key on SmartSite – Consult it first Thursday o Hand in problem set 2 o Quick look at poverty measurement (second half of PRL Ch. 6) o Review: You bring the questions Tuesday: Midterm o Bring blue book o Calculators okay Development in the News Justin Lin’s Talk: Any thoughts? o Free Trade Emphasis o Food Banks Niger Famine Duflo Randomization Ag Technology Introduction to Inequality Our focus until now has been on y (income per-capita) This is just one feature of the distribution of income (itsmean) It tells, in general, the total size of the pie FINISH Why do we care about inequality? Normative arguments? o Based on value o Inequality is integrally related to “fairness” o Other things equal, we tend to think that greater equality reflects greater fairness o Thus we tend to judge distributions that are very unequal as “worse” than those that are more equal o Ex: everyone deserves food Positive (functional) arguments? o an argument based on objective, not value-based o the degree of inequality can affect performance of economy o high inequality may cause social/political unrest o markets may work better for certain income levels (credit and collateral)
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o endogeneity of savings and income o ex: from inequality to growth rates: equality in education (gaining college education) => higher growth rates;
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