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Scientific article
Open access
English

Robust Stochastic Dominance: A Semi-Parametric Approach

Published inThe journal of economic inequality, vol. 5, no. 1, p. 21-37
Publication date2007
Abstract

Lorenz curves and second-order dominance criteria, the fundamental tools for stochastic dominance, are known to be sensitive to data contamination in the tails of the distribution. We propose two ways of dealing with the problem: (1) Estimate Lorenz curves using parametric models 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 semi-parametric approach (2). Since estimation is only a first step for statistical inference and since semi-parametric models are not straightforward to handle, we also derive asymptotic covariance matrices for our semi-parametric estimators.

Keywords
  • Welfare dominance
  • Lorenz curve
  • Pareto model
  • M-estimators
Citation (ISO format)
COWELL, Frank, VICTORIA-FESER, Maria-Pia. Robust Stochastic Dominance: A Semi-Parametric Approach. In: The journal of economic inequality, 2007, vol. 5, n° 1, p. 21–37. doi: 10.1007/s10888-006-9022-z
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Article (Published version)
accessLevelPublic
Identifiers
ISSN of the journal1569-1721
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