Opportunity-Sensitive Social Welfare

TL;DR

This paper introduces an axiomatic framework for evaluating income distributions from an opportunity-egalitarian perspective, linking decision theory under ambiguity with social welfare analysis.

Contribution

It develops opportunity-sensitive social welfare functions with a novel two-stage evaluation and provides new inequality measures decomposing risk and opportunity-based inequality.

Findings

Characterizes opportunity-sensitive social welfare functions governed by a single parameter.

Provides equivalent representations including a mean-divergence form separating efficiency and inequality.

Establishes an opportunity stochastic dominance criterion for welfare comparisons.

Abstract

We develop an axiomatic framework to evaluate income distributions from the perspective of an opportunity-egalitarian social planner. Building on a formal link with the literature on decision theory under ambiguity, we characterize a class of opportunity-sensitive social welfare functions based on a two-stage evaluation: the planner first computes the expected utility of income within each social type, where types consist of individuals sharing the same circumstances beyond their control, and then aggregates these type-specific welfare levels through a transformation reflecting aversion to inequality of opportunity. The evaluation is governed by a single parameter. We provide equivalent representations of the social welfare function, including a mean-divergence form that separates an efficiency term from an inequality term, and we establish an opportunity stochastic dominance criterion. Finally, we derive inequality measures that decompose overall inequality into within-group risk and between-group inequality of opportunity, providing a tractable basis for normative welfare analysis.