Robust Lorenz Curves: A Semiparametric Approach

29 Pages Posted: 21 Feb 2008

See all articles by Frank Cowell

Frank Cowell

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)

Maria-Pia Victoria-Feser

University of Geneva - HEC

Date Written: May 2001

Abstract

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.

Suggested Citation

Cowell, Frank A. and Victoria-Feser, Maria-Pia, Robust Lorenz Curves: A Semiparametric Approach (May 2001). LSE STICERD Research Paper No. 50. Available at SSRN: https://ssrn.com/abstract=1094797

Frank A. Cowell (Contact Author)

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 (0)171-955 7277 (Phone)
+44 (0)171-242 2357 (Fax)

Maria-Pia Victoria-Feser

University of Geneva - HEC ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

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