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Modelling Lorenz curves: robust and semi-parametric issues

Cowell, Frank and Victoria-Feser, M.P. (2007) Modelling Lorenz curves: robust and semi-parametric issues. 91. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Abstract

Modelling Lorenz curves (LC) for stochastic dominance comparisons is central to the analysis of income distribution. It is conventional to use non-parametric statistics based on empirical income cumulants which are in the construction of LC and other related second-order dominance criteria. However, although attractive because of its simplicity and its apparent flexibility, this approach suffers from important drawbacks. While no assumptions need to be made regarding the data-generating process (income distribution model), the empirical LC can be very sensitive to data particularities, especially in the upper tail of the distribution. This robustness problem can lead in practice to “wrong” interpretation of dominance orders. A possible remedy for this problem is the use of parametric or semi-parametric models for the data-generating process and robust estimators to obtain parameter estimates. In this paper, we focus on the robust estimation of semi-parametric LC and investigate issues such as sensitivity of LC estimators to data contamination (Cowell and Victoria-Feser 2002), trimmed LC (Cowell and Victoria-Feser 2006) and inference for trimmed LC (Cowell and Victoria-Feser 2003), robust semi-parametric estimation for LC (Cowell and Victoria-Feser 2007) selection of optimal thresholds for (robust) semi-parametric modelling (Dupuis and Victoria-Feser 2006) and use both simulations and real data to illustrate these points.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk/
Additional Information: © 2007 Authors: Frank Cowell and Maria-Pia Victoria-Feser.
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Research centres and groups > Centre for Analysis of Social Exclusion (CASE)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 91
Date Deposited: 22 Aug 2007
URL: http://eprints.lse.ac.uk/2694/

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