Contents

2.1. Introduction 68

2.2. A Brief Historical Sketch 72

2.3. InequalityofWhat? 75

2.3.1 Functionings and Capabilities 75

2.3.1.1 Capabilities_rResponsibility_rOndFreedom 77

2.3.1.2 ChoiceofDimensions 80

2.3.1.3 AggregationandRespectforPreferences 82

2.3.2 Utility and Happiness 85

2.3.2.1 Feelings of Happiness and Hedonic Welfarism 87

2.3.2.2 Life Satisfaction, Experienced and Decision Utility 90

2.3.2.3 Respect for Preferences 92

2.3.2.4 Responsibility and Freedom 92

2.3.3 Respecting Preferences: Equivalent Income 93

2.3.3.1 The Equivalent Income 93

2.3.3.2 Concavity Failures and Choice of Reference Values 95

2.3.3.3 Freedom and Responsibility 98

2.3.3.4 Measurement of Preferences 99

2.3.3.5 What If Preferences Are Incomplete? 101

2.3.4 Conclusion 103

2.4.

2.4.1 Two-Step Aggregation and Cumulative Deprivation 106

2.4.2 Multidimensional Pigou-Dalton Transfer Principles and Respect for Preferences 108

2.4.2.1 Multidimensional Pigou-Dalton Transfer Principle(s) 108

2.4.2.2 The Impossibility of a Paretian Egalitarian 110

2.4.3 Dominance and Agnosticism on Preferences 112

2.5. Applications 113

2.5.1 HouseholdEquivalenceScales 114

2.5.2 Publicly Provided Services and Benefits 120

2.5.2.1 The Extended Income Approach 121

2.5.2.2 Valuing Publicly Provided Services and Respect for Preferences 122

2.5.2.3 Adjusting for Needs and Individual Responsibility 124

2.5.3 International Comparisons 126

2.5.3.1 PPPIndexes 126

2.5.3.2 Nonmarket Dimensions 130

Handbook of Income Distribution, Volume 2A

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ISSN 1574-0056, http://dx.doi.org/10.1016/B978-0-444-59428-0.00003-5

2.6. Conclusion 133

Acknowledgment 134

References 134