Inequality in non-income dimensions and resource allocation rules

Chakraborty, Achin (2010). "Inequality in non-income dimensions and resource allocation rules" Paper presented at the 7th annual conference of the HDCA, 21-23 September 2010, Amman, Jordan.

While inequality in per capita state domestic product in India has increased over time, state level indicators of human development show decreasing dispersion for the obvious reason that indicators of health or education are fundamentally different from income in one very important respect. As the average value of an indicator like literacy rate, mean years of schooling, or ‘average life span’ for the whole population increases, inequality among sub-groups of population decreases, simply because unlike income all these indicators have a natural upper limit. Does it then mean that instead of worrying about disparity in social indicators we should focus only on disparity in per capita income? We argue in this paper that there are relevant aspects of disparity across and within states as far as non-income dimensions of well-being are concerned. In the process we clarify several conceptual issues around equity and inequality in non-income dimensions. Even though at the abstract level the definitions of vertical and horizontal equity are well understood, in the specific context of resource allocation by a federal government among sub-national entities, the interpretation of equity can take a variety of forms depending on the way one seeks to capture empirically the equity consequences of an allocation mechanism. In this paper, we have examined two well-known allocation rules, viz. population-weighted utilitarianism and leximin, whose axiomatic properties are well-discussed in the social choice literature. The normative implications of these rules, we argue, are not the same across evaluative spaces. While population-weighted utilitarianism in the space of income is criticised for being insensitive to equity, the force of the criticism seems to be weak, for example, in the space of infant mortality. One could argue that saving infant lives would be valuable irrespective of where the infants are situated, and the boundaries between the states may not be morally too relevant. However, the counter-point to this argument may be based on fairness. We pursue this point through actual resource allocation for human development in India. Almost always disparities in health or education refer to inequality in outcomes. Yet, equalizing outcome can hardly be a practical goal of any egalitarian policy. An objective to attain equal health would raise problems in defining and comparing health levels as well as being exceedingly expensive to obtain. But equalizing marginal met need may be possible. Equal access for equal need might be one plausible alternative. If in region A the probability of remaining illiterate, for example, is the same as in region B, then it can be argued that both A and B should have the same level of resources. Alternatively, if in region A the probability of remaining illiterate is higher than in B, the allocation priorities should be such that the quality of primary school infrastructure in A should not be worse than in B. We checked this basic intuition of ours with the data provided by the District Information System for Education (DISE) of the Ministry of Human Resources, Government of India. We find that the distribution of school infrastructure is highly perverse, in the sense that areas that had high rates of illiteracy are the ones which have poorer infrastructure even in 2005-06, after several years of Sarva Siksha Abhiyan, the massive intervention programme in elementary education.
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