Glossary

altruism: Altruism is a social preference: a person who is willing to bear a cost to benefit somebody else is said to be altruistic.
asset price bubble: An asset price bubble is an episode in which the market price of an asset rises substantially and continuously over time, fuelled by expectations of future price increases (that is, people want to hold the asset because they believe that its price will be higher in future). Eventually the bubble bursts and the price drops suddenly.
automatic stabilizers: Automatic stabilizers are tax and transfer policies that have the effect of offsetting an expansion or contraction of the economy. For example, spending on unemployment benefits rises during a recession.
collateral: An asset that a borrower pledges to a lender as a security for a loan. If the borrower is not able to make the loan payments as promised, the lender becomes the owner of the asset.
endowment: A person’s endowments are the things they have that enable them to receive income. They include physical wealth (for example, land, housing, machinery); financial wealth (for example, savings, stocks/shares, bonds); intellectual property (for example, patents, copyrights); knowledge, skills, abilities, and experience that affect labour income; and citizenship and rights to work. They can include characteristics such as nationality, gender, race, and social class, if these affect their income.
equilibrium: An equilibrium is a situation or model outcome that is self-perpetuating: if the outcome is reached it does not change, unless an external force disturbs it. By an ‘external force’, we mean something that is determined outside the model.
Gini coefficient: A measure of inequality of a quantity such as income or wealth, varying from a value of zero (if there is no inequality) to one (if a single individual receives all of it). It is the average difference in, say, income between every pair of individuals in the population relative to the mean income, multiplied by one-half. Other than for small populations, a close approximation to the Gini coefficient can be calculated from a Lorenz curve diagram. See also: Lorenz curve.
human capital: The stock of knowledge, skills, behavioural attributes, and personal characteristics that determine the labour productivity or labour earnings of an individual. Investment in human capital, through education, training, and socialization, can increase the stock. Human capital is part of an individual’s endowment. See also: endowment.
inequality aversion: A preference for more equal outcomes and a dislike of outcomes in which some individuals (even if they include oneself) receive more than others.
informal employment: Employment without written contracts or benefits, meaning workers often lack access to benefits such as health insurance, pensions, or unemployment protection.
intergenerational elasticity: When comparing parents and grown offspring, the percentage difference in the second generation’s status that is associated with a 1% difference in the adult generation’s status. See also: intergenerational inequality, intergenerational mobility, intergenerational transmission of economic differences.
intergenerational inequality: The extent to which differences in parental generations are passed on to the next generation, as measured by the intergenerational elasticity or the intergenerational correlation. See also: intergenerational elasticity, intergenerational mobility, intergenerational transmission of economic differences.
intergenerational mobility: Changes in the relative economic or social status between parents and children. Upward mobility occurs when the status of a child surpasses that of the parents. Downward mobility is the converse. A widely used measure of intergenerational mobility is the correlation between the positions of parents and children (for example, in their years of schooling or income). Another is the intergenerational elasticity. See also: intergenerational elasticity, intergenerational transmission of economic differences.
intergenerational transmission of economic differences: The processes by which the economic status of the adult sons and daughters comes to resemble the economic status of the parents. See also: intergenerational elasticity, intergenerational mobility.
Lorenz curve: A graphical representation of the inequality of some quantity such as income or wealth. Taking income as an example, individuals in the population are arranged in ascending order of income. First we calculate the total income of the population. Then for each level of income, we plot the percentage of total income held by people at this income level or lower against the percentage of people at this income level or lower. The area between the Lorenz curve and the 45-degree line, expressed as a fraction of the total area below the 45-degree line, is a measure of inequality. Other than for small populations, it is a close approximation to the Gini coefficient. See also: Gini coefficient.
poverty: Lacking the basic income needed to maintain a pre-specified minimum standard of living. The minimum standard of living can be defined in absolute terms (such as having the basic necessities for survival) or relative terms (such as having income below a certain percentage of the median income in that country).
reciprocity: A preference to be kind to or to help others who are kind and helpful, and to withhold help and kindness from people who are not helpful or kind.
social preferences: An individual is said to have social preferences if their individual utility depends on what happens to other people, as well as on their own pay-offs.
stable equilibrium: An equilibrium is stable if a small movement away from the equilibrium is self-correcting (leading to movement back toward the equilibrium). See also: equilibrium.
tipping point: A tipping point is an unstable equilibrium at the boundary between two regions. A small movement into either of the regions causes a movement further into the same region, away from the equilibrium. See also: asset price bubble.
unstable equilibrium: An equilibrium is unstable if, when a shock disturbs the equilibrium, there is a subsequent tendency to move even further away from the equilibrium. See also: equilibrium.
vulnerability to poverty: The likelihood that a household currently above the poverty line may fall into poverty in the future as a result of adverse events such as income loss, unemployment, illness, or price shocks. It captures a household’s exposure to risks and its limited capacity to cope with them, emphasizing that well-being depends not only on current income but also on economic security over time.