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Abstract:

DARP Paper
Robust Lorenz Curves: A Semiparametric Approach, (published in Journal of Economic Inequality, vol. 5 (2007), pp. 21-37)
Frank A Cowell and Maria-Pia Victoria-Feser May 2001
Paper No' DARP 050:
Full Paper (pdf)

Tags: welfare dominance; lorenz curve; pareto model; m-estimators.

Lorenz curves and second-order dominance criteria are known to be sensitive to data contamination in the right tail of the distribution. We propose two ways of dealing with the problem: (1) Estimate Lorenz curves using parametric models for income distributions, and (2) Combine empirical estimation with a parametric (robust) estimation of the upper tail of the distribution using the Pareto model. Approach (2) is preferred because of its flexibility. Using simulations we show the dramatic effect of a few contaminated data on the Lorenz ranking and the performance of the robust approach (2). Statistical inference tools are also provided.