Failure to compensate or failure to reward? A decomposition of inequality of opportunity

We develop new ex ante and ex post liberal measures of inequality of opportunity that decompose into compensation and reward parts. Roughly, the compensation part measures the inequality between individuals with different circumstances (e.g., parental background), whereas the reward part measures the extent to which income differences reflect the market returns to the exercise of individual responsibility (e.g., work effort). As it turns out, the compensation components of the measures take the form of utilitarian measures of inequality of opportunity, thereby revealing a striking connection between the rival liberal and utilitarian approaches. We apply our measures and their decompositions to the net and gross income distributions of ten European countries.