Welfare Disparity Among Subgroups of Population: The Method of Analysis with an Application

The aim of this paper is to examine the properties and then disaggregate a social welfare function (SWF) by subgroups of population. The functional form of the SWF was axiomatically derived by Sen and has recently been given a utilitarian foundation by Dagum. Since the function contains the Gini coefficient as the inequality parameter, it could not be disaggregated by subgroups of population in the conventional manner. In this paper, using an alternative method of subgroup decomposition of the Gini coefficient recently suggested by Podder (1993), the SWF has now been disaggregated. Among other things, with the application of this method it is now possible to identify the disadvantaged groups by their relative shares in total welfare. However, the main use of the method is probably the determination of the effect of economic growth in specific subgroups on total social welfare of the society as a whole. The method has been empirically illustrated with Australian Household Expenditures data of 1988–89 . The subgroups are based on the geographical region of residence. The effect of a percentage change in income of a specific group on total welfare is also computed. This information is crucially important in a variety of social decision making situations including optimum social security decisions and cost benefit analysis.