Efficiency-based measures of inequality

How should we make value judgments about wealth inequality? Harsanyi (1953) proposes that an individual evaluate wealth possibilities through expected utility under Rawl’s (1971) “veil of ignorance” assuming wealth levels are assigned uniformly. We propose an alternative notion of how wealth levels are assigned, based on a contest. Inequality can be captured through the equilibrium properties of such a game. We connect these inequality measures to existing measures, demonstrating the conditions under which they satisfy the received key axioms of inequality measures (anonymity, homogeneity and the Pigou–Dalton principle), and how they can evaluate a tradeoff between greater total wealth and greater inequality.