Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity

This study analyzes the extent of downward bias in the calculation of inequality of opportunity for continuous outcomes such as income. A typically recognized source of bias is the unobserved circumstances as there is a limited set of variables...

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Main Authors:	Lara Ibarra, Gabriel, Martinez Cruz, Adan L.
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	LIVING STANDARDS EQUAL OPPORTUNITY HOUSEHOLD SURVEY POPULATION DISTRIBUTION POPULATION EDUCATION ECONOMIC GROWTH CAPITAL ACCUMULATION INCOME INTEREST NORMAL DISTRIBUTION INCOME INCREASE SIMULATIONS INEQUALITY INDEX LABOR FORCE DEVELOPING COUNTRIES HEALTH CARE INDIVIDUAL CHOICES POLITICAL ECONOMY EMPIRICAL ISSUE WELFARE MEAN LOG DEVIATION INCENTIVES DISTRIBUTION POLICY DISCUSSIONS VARIABLES WEALTH MEASURES RURAL COMMUNITY EMPIRICAL LITERATURE EXPERIMENTAL DESIGN NATURAL LOG PUBLIC POLICY BETWEEN-GROUP INEQUALITY ABSOLUTE VALUE DEVELOPMENT ECONOMICS EDUCATIONAL ATTAINMENT DESCRIPTIVE STATISTICS INEQUALITY MEASURES INCOME INEQUALITY AVERAGE INCOME GINI INDEX HOUSEHOLD INCOME EXPLANATORY VARIABLES ANTI-POVERTY INDICATORS PRODUCT UTILITY MENTAL HEALTH MORTALITY RESPECT PROGRESS INFANT MORTALITY FREE WILL CONSUMPTION HUMAN CAPITAL INFANT ECONOMIC SURVEYS EMPIRICAL APPROACHES WAGES POLICIES ECONOMIC OUTCOMES HIGHER INEQUALITY REGIONAL DUMMIES POLICY RESEARCH WORKING PAPER PUBLIC POLICIES VALUE RELATIVE POSITION DEPENDENT VARIABLE INCOME DIFFERENTIALS POLICY MAKERS DISTRIBUTION FUNCTION INCOME DISTRIBUTIONS PURCHASING POWER NEGATIVE EFFECT INCOME DISTRIBUTION SOCIAL MOVEMENTS INCOMES POSITIVE CORRELATION RURAL MEASUREMENT DOWNWARD BIAS POPULATIONS MOTHER SURVEYS POLICY CUMULATIVE DISTRIBUTION FUNCTION ECONOMIC INEQUALITY EMPIRICAL REGULARITY ANTI-POVERTY POLICY TAXATION ECONOMIC DEVELOPMENT LOW INCOME GROUP INEQUALITY THEORY POVERTY POPULATION EQUALITY OF OPPORTUNITY NEONATAL MORTALITY PRACTITIONERS POLICY RESEARCH RISING INEQUALITY POOR MEASURING INEQUALITY LACK OF INFORMATION OUTCOMES HEALTH SERVICES PUBLIC AFFAIRS INCOME TAXATION HUMAN DEVELOPMENT DEVELOPMENT POLICY INEQUALITY
Online Access:	http://documents.worldbank.org/curated/en/2015/10/25203297/exploring-sources-downward-bias-measuring-inequality-opportunity http://hdl.handle.net/10986/22881

id	okr-10986-22881
recordtype	oai_dc
spelling	okr-10986-228812021-04-23T14:04:11Z Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity Lara Ibarra, Gabriel Martinez Cruz, Adan L. LIVING STANDARDS EQUAL OPPORTUNITY HOUSEHOLD SURVEY POPULATION DISTRIBUTION POPULATION EDUCATION ECONOMIC GROWTH CAPITAL ACCUMULATION INCOME INTEREST NORMAL DISTRIBUTION INCOME INCREASE SIMULATIONS INEQUALITY INDEX LABOR FORCE DEVELOPING COUNTRIES HEALTH CARE INDIVIDUAL CHOICES POLITICAL ECONOMY EMPIRICAL ISSUE WELFARE MEAN LOG DEVIATION INCENTIVES DISTRIBUTION POLICY DISCUSSIONS VARIABLES WEALTH MEASURES RURAL COMMUNITY EMPIRICAL LITERATURE EXPERIMENTAL DESIGN NATURAL LOG PUBLIC POLICY BETWEEN-GROUP INEQUALITY ABSOLUTE VALUE DEVELOPMENT ECONOMICS EDUCATIONAL ATTAINMENT DESCRIPTIVE STATISTICS INEQUALITY MEASURES INCOME INEQUALITY AVERAGE INCOME GINI INDEX HOUSEHOLD INCOME EXPLANATORY VARIABLES ANTI-POVERTY INDICATORS PRODUCT UTILITY MENTAL HEALTH MORTALITY RESPECT PROGRESS INFANT MORTALITY FREE WILL CONSUMPTION HUMAN CAPITAL INFANT ECONOMIC SURVEYS EMPIRICAL APPROACHES WAGES POLICIES ECONOMIC OUTCOMES HIGHER INEQUALITY REGIONAL DUMMIES POLICY RESEARCH WORKING PAPER PUBLIC POLICIES VALUE RELATIVE POSITION DEPENDENT VARIABLE INCOME DIFFERENTIALS POLICY MAKERS DISTRIBUTION FUNCTION INCOME DISTRIBUTIONS PURCHASING POWER NEGATIVE EFFECT INCOME DISTRIBUTION SOCIAL MOVEMENTS MEAN LOG DEVIATION INCOMES POSITIVE CORRELATION RURAL MEASUREMENT DOWNWARD BIAS POPULATIONS MOTHER SURVEYS POLICY CUMULATIVE DISTRIBUTION FUNCTION ECONOMIC INEQUALITY EMPIRICAL REGULARITY ANTI-POVERTY POLICY TAXATION ECONOMIC DEVELOPMENT DEPENDENT VARIABLE LOW INCOME GROUP INEQUALITY THEORY POVERTY POPULATION EQUALITY OF OPPORTUNITY NEONATAL MORTALITY PRACTITIONERS POLICY RESEARCH RISING INEQUALITY POOR MEASURING INEQUALITY LACK OF INFORMATION POPULATION EDUCATION OUTCOMES HEALTH SERVICES PUBLIC AFFAIRS INCOME TAXATION HUMAN DEVELOPMENT DEVELOPMENT POLICY INEQUALITY This study analyzes the extent of downward bias in the calculation of inequality of opportunity for continuous outcomes such as income. A typically recognized source of bias is the unobserved circumstances as there is a limited set of variables available in household and labor force surveys. Another previously overlooked source is the likely unobservable nature of top incomes. Using Monte Carlo simulations where the underlying inequality of opportunity is predetermined at various levels, the study presents three key findings. First, the omission of a relevant circumstance can bias the inequality of opportunity estimate by as much as 80 percent, depending on how much variation of the outcome such circumstance explains. Second, not observing the top 5 percent of the income distribution can lead to downward biases of anywhere between 12 and 35 percent, and the combination of missing the most favored population and even one relevant circumstance exacerbates the bias of the empirical estimates. The third key result is that the estimated inequality of opportunity is strongly correlated with the amount of variation in the outcome variable explained by the combination of circumstances (measured by the R2). This result suggests that in empirical applications, the inequality of opportunity estimate can be roughly (and quickly) approximated using simple econometric techniques. 2015-11-05T19:34:01Z 2015-11-05T19:34:01Z 2015-10 Working Paper http://documents.worldbank.org/curated/en/2015/10/25203297/exploring-sources-downward-bias-measuring-inequality-opportunity http://hdl.handle.net/10986/22881 English en_US Policy Research Working Paper;No. 7458 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	LIVING STANDARDS EQUAL OPPORTUNITY HOUSEHOLD SURVEY POPULATION DISTRIBUTION POPULATION EDUCATION ECONOMIC GROWTH CAPITAL ACCUMULATION INCOME INTEREST NORMAL DISTRIBUTION INCOME INCREASE SIMULATIONS INEQUALITY INDEX LABOR FORCE DEVELOPING COUNTRIES HEALTH CARE INDIVIDUAL CHOICES POLITICAL ECONOMY EMPIRICAL ISSUE WELFARE MEAN LOG DEVIATION INCENTIVES DISTRIBUTION POLICY DISCUSSIONS VARIABLES WEALTH MEASURES RURAL COMMUNITY EMPIRICAL LITERATURE EXPERIMENTAL DESIGN NATURAL LOG PUBLIC POLICY BETWEEN-GROUP INEQUALITY ABSOLUTE VALUE DEVELOPMENT ECONOMICS EDUCATIONAL ATTAINMENT DESCRIPTIVE STATISTICS INEQUALITY MEASURES INCOME INEQUALITY AVERAGE INCOME GINI INDEX HOUSEHOLD INCOME EXPLANATORY VARIABLES ANTI-POVERTY INDICATORS PRODUCT UTILITY MENTAL HEALTH MORTALITY RESPECT PROGRESS INFANT MORTALITY FREE WILL CONSUMPTION HUMAN CAPITAL INFANT ECONOMIC SURVEYS EMPIRICAL APPROACHES WAGES POLICIES ECONOMIC OUTCOMES HIGHER INEQUALITY REGIONAL DUMMIES POLICY RESEARCH WORKING PAPER PUBLIC POLICIES VALUE RELATIVE POSITION DEPENDENT VARIABLE INCOME DIFFERENTIALS POLICY MAKERS DISTRIBUTION FUNCTION INCOME DISTRIBUTIONS PURCHASING POWER NEGATIVE EFFECT INCOME DISTRIBUTION SOCIAL MOVEMENTS MEAN LOG DEVIATION INCOMES POSITIVE CORRELATION RURAL MEASUREMENT DOWNWARD BIAS POPULATIONS MOTHER SURVEYS POLICY CUMULATIVE DISTRIBUTION FUNCTION ECONOMIC INEQUALITY EMPIRICAL REGULARITY ANTI-POVERTY POLICY TAXATION ECONOMIC DEVELOPMENT DEPENDENT VARIABLE LOW INCOME GROUP INEQUALITY THEORY POVERTY POPULATION EQUALITY OF OPPORTUNITY NEONATAL MORTALITY PRACTITIONERS POLICY RESEARCH RISING INEQUALITY POOR MEASURING INEQUALITY LACK OF INFORMATION POPULATION EDUCATION OUTCOMES HEALTH SERVICES PUBLIC AFFAIRS INCOME TAXATION HUMAN DEVELOPMENT DEVELOPMENT POLICY INEQUALITY
spellingShingle	LIVING STANDARDS EQUAL OPPORTUNITY HOUSEHOLD SURVEY POPULATION DISTRIBUTION POPULATION EDUCATION ECONOMIC GROWTH CAPITAL ACCUMULATION INCOME INTEREST NORMAL DISTRIBUTION INCOME INCREASE SIMULATIONS INEQUALITY INDEX LABOR FORCE DEVELOPING COUNTRIES HEALTH CARE INDIVIDUAL CHOICES POLITICAL ECONOMY EMPIRICAL ISSUE WELFARE MEAN LOG DEVIATION INCENTIVES DISTRIBUTION POLICY DISCUSSIONS VARIABLES WEALTH MEASURES RURAL COMMUNITY EMPIRICAL LITERATURE EXPERIMENTAL DESIGN NATURAL LOG PUBLIC POLICY BETWEEN-GROUP INEQUALITY ABSOLUTE VALUE DEVELOPMENT ECONOMICS EDUCATIONAL ATTAINMENT DESCRIPTIVE STATISTICS INEQUALITY MEASURES INCOME INEQUALITY AVERAGE INCOME GINI INDEX HOUSEHOLD INCOME EXPLANATORY VARIABLES ANTI-POVERTY INDICATORS PRODUCT UTILITY MENTAL HEALTH MORTALITY RESPECT PROGRESS INFANT MORTALITY FREE WILL CONSUMPTION HUMAN CAPITAL INFANT ECONOMIC SURVEYS EMPIRICAL APPROACHES WAGES POLICIES ECONOMIC OUTCOMES HIGHER INEQUALITY REGIONAL DUMMIES POLICY RESEARCH WORKING PAPER PUBLIC POLICIES VALUE RELATIVE POSITION DEPENDENT VARIABLE INCOME DIFFERENTIALS POLICY MAKERS DISTRIBUTION FUNCTION INCOME DISTRIBUTIONS PURCHASING POWER NEGATIVE EFFECT INCOME DISTRIBUTION SOCIAL MOVEMENTS MEAN LOG DEVIATION INCOMES POSITIVE CORRELATION RURAL MEASUREMENT DOWNWARD BIAS POPULATIONS MOTHER SURVEYS POLICY CUMULATIVE DISTRIBUTION FUNCTION ECONOMIC INEQUALITY EMPIRICAL REGULARITY ANTI-POVERTY POLICY TAXATION ECONOMIC DEVELOPMENT DEPENDENT VARIABLE LOW INCOME GROUP INEQUALITY THEORY POVERTY POPULATION EQUALITY OF OPPORTUNITY NEONATAL MORTALITY PRACTITIONERS POLICY RESEARCH RISING INEQUALITY POOR MEASURING INEQUALITY LACK OF INFORMATION POPULATION EDUCATION OUTCOMES HEALTH SERVICES PUBLIC AFFAIRS INCOME TAXATION HUMAN DEVELOPMENT DEVELOPMENT POLICY INEQUALITY Lara Ibarra, Gabriel Martinez Cruz, Adan L. Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity
relation	Policy Research Working Paper;No. 7458
description	This study analyzes the extent of downward bias in the calculation of inequality of opportunity for continuous outcomes such as income. A typically recognized source of bias is the unobserved circumstances as there is a limited set of variables available in household and labor force surveys. Another previously overlooked source is the likely unobservable nature of top incomes. Using Monte Carlo simulations where the underlying inequality of opportunity is predetermined at various levels, the study presents three key findings. First, the omission of a relevant circumstance can bias the inequality of opportunity estimate by as much as 80 percent, depending on how much variation of the outcome such circumstance explains. Second, not observing the top 5 percent of the income distribution can lead to downward biases of anywhere between 12 and 35 percent, and the combination of missing the most favored population and even one relevant circumstance exacerbates the bias of the empirical estimates. The third key result is that the estimated inequality of opportunity is strongly correlated with the amount of variation in the outcome variable explained by the combination of circumstances (measured by the R2). This result suggests that in empirical applications, the inequality of opportunity estimate can be roughly (and quickly) approximated using simple econometric techniques.
format	Working Paper
author	Lara Ibarra, Gabriel Martinez Cruz, Adan L.
author_facet	Lara Ibarra, Gabriel Martinez Cruz, Adan L.
author_sort	Lara Ibarra, Gabriel
title	Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity
title_short	Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity
title_full	Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity
title_fullStr	Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity
title_full_unstemmed	Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity
title_sort	exploring the sources of downward bias in measuring inequality of opportunity
publisher	World Bank, Washington, DC
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/10/25203297/exploring-sources-downward-bias-measuring-inequality-opportunity http://hdl.handle.net/10986/22881
_version_	1764452310582296576

Exploring the Sources of Downward Bias in Measuring Inequality of Opportunity

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