policymakers demonstrate

Inequality and Welfare: Is Europe Special? 513
these risks. Social insurance will also redistribute income across individuals.
However, from a purely conceptual point of view, the main motive of insurance
redistribution is not between individuals, but for the same individual at different
periods or across different states in the world. Due to clear constraints, I cannot
review the literature about this insurance redistribution which is somewhat difficult
to disentangle from the pure vertical distribution from rich to poor in empirical
analysis. This is an important omission since risk preferences are important
to understand the magnitude of public health expenditures, social security and
public education. These public expenditures help to mitigate inequality of wellbeings
as well as vertical redistribution, but their interplay is quite complex to
understand. For instance, Moene and Wallerstein (2001) build a model where
redistribution is an inferior good, whereas insurance motive is a normal good.
I have tried to maintain the technicalities at a minimum so that this survey
can be read by a larger audience. There are no equations in the main text.
12.2 Inequality and Welfare: Two Interconnected Notions
Inequality and welfare are two catch-all terms, and a natural way to get into the
substance is to describe how economists and, more generally, social scientists
have approached these two notions. This section is more conceptual than the
others, but there is no short cut to avoid misleading interpretations here.
12.2.1 Inequality
The word inequality refers to the distribution of some measurable (in a cardinal
sense) quantity. In economics, there are many quantities whose distribution
one may be interested in. Earnings, disposable income, consumption, savings,
wealth, working hours, leisure time, longevity, number of years of schooling,
etc. are just a few examples. A fundamental difference comes in when one asks
whether inequality should be assessed ex-post or ex-ante.
The former means that all the different processes have occurred. The various
processes refer to the production phase, the consumption phase, price determination
and also government intervention through taxes, expenditures and
transfers, depending whether we want to look before or after the government
intervention. Another way to term this ex-post inequality is to say that we are
interested in the inequality of outcomes. A natural way to do this is to look
at the distribution of the outcome in a statistical sense and to adopt simple or
sophisticated measures of the dispersion of this outcome. The initial conceptual
steps regarding measuring inequality date back to the beginning of the twentieth
century. They were put forward by Vilfredo Pareto with his Pareto Law,
by Max Lorenz with the Lorenz curve, by Corrado Gini with the Gini index,
and by the British economist and member of the House of commons, Dalton
(1920) (see Atkinson and Brandolini, 2015 for an appraisal of his contribution)