Welfare gap: theory and estimation

HARMONIA 9, Principal Investigator MARTYNA KOBUS

Although economists and politicians have long been interested in knowing about inequalities between different groups, gender, ethnicity, etc., usually only income or wage inequalities are analyzed, eg the wage gap between men and women. On the other hand, for many decades, economists, and recently also governments and international organizations, have recognized that well-being is a multidimensional concept and is not reduced to income or wages, because health status, education or the environment also affect people's well-being. Welfare analysis is incomplete if it is carried out in one dimension, as the same dollar has a different value, for example: for a healthy and a sick person. The econometric literature on the estimation of differences between groups (the so-called gaps), although a key area of research in economics, takes into account only differences in wages and has not yet been extended to include more realistic visions of prosperity. This project addresses these issues. This raises conceptual issues with aggregation. Most measures assume the same utility functions between individuals and even groups, and in the case of significant heterogeneity, this assumption makes gap measures arbitrary to a large extent. In this project, a method for identifying and estimating the welfare gap will be developed. Three research issues are addressed: (1) Differences in well-being between women and men: heterogeneity of preferences, (2) Welfare gap: development of theories and methods, and (3) Impact of differences in characteristics on differences in results: decomposition of the gap. we develop measurement theories and estimation tools. We are interested in whether inequality decreases or increases when more dimensions of well-being are taken into account. It should be remembered that different groups may value these dimensions differently and exchange them with each other. The results of the project will inform about inequalities in prosperity between selected groups. This is important for decision-makers in solving the problems they face, namely the choice of policies that apply to many goods and services at the same time.