Mathias Brandewinder on .NET, F#, VSTO and Excel development, and quantitative analysis / machine learning.
by Mathias 16. September 2008 16:59

Macroeconomics and public policy have never been my forte in economics, which is probably why I did not come across the Gini coefficient until now. In a nutshell, the Gini coefficient is a clever way to measure inequalities of distribution in a population.

As an illustration, imagine 4 countries, each of them with 10 inhabitants. In Equalistan, everyone owns the same amount of $100, whereas in Slaveristan, one person owns everything, and the 9 others have nothing. In between, there are Similaristan and Spreadistan.

 

If you order the population by increasing wealth and plot out the cumulative % of the total wealth they own, you will get the so-called Lorentz curve. Equalistan and Slaveristan are the two extreme possible cases; any curve must fall between these two, and the further the curve is from Equalistan, the less equal the distribution. The Gini coefficient uses that idea, and measures the surface between the Equalistan curve and your curve; normalizing to obtain 100% for the Slaveristan case, and any population will have an index between 0% (perfectly equal) and 100% (absolutely unequal).

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