A multivariate analysis of the distribution of individual's welfare in China: what is the role of health?

Many economists have argued that income is an inadequate indicator of welfare. In this paper, we conduct a multivariate analysis of the distribution of individual welfare in China at three selected time points: 1991, 1997 and 2006. Instead of using income as the only welfare indicator as in most distributional analyses, we explicitly consider the role of health in welfare distribution. We adopt the Naga and Geoffard (2006) decomposition method by which we can decompose a bidimensional welfare inequality index into two univariate Atkinson-Kolm-Sen indices that measure the inequalities in health and income, and a third term that measures the contribution from the joint distribution of the two attributes to total inequality. We show that the third term might be used as an alternative to the concentration index to measure the income-related inequality in health.