An Assessment of the Valuation Methods Used to Calculate the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and Sustainable Net Benefit Index (SNBI)

Abstract

For some time now, ecological economists have been putting forward a ‘threshold hypothesis’ – the notion that when macroeconomic systems expand beyond a certain size, the additional cost of growth exceeds the flow of additional benefits. In order to support their belief, ecological economists have developed a number of similar indexes to measure and compare the benefits and costs of growth (e.g., the Index of Sustainable Economic Welfare and the Genuine Progress Indicator). In virtually every instance where an index of this type has been calculated for a particular country, the movement of the index appears to reinforce the existence of the threshold hypothesis. Of late, a number of observers have expressed concerns about whether these alternative indexes reflect concrete reality or the prejudices of ecological economists. In view of these concerns, this paper closely examines the valuation methods used in the calculation the Index of Sustainable Economic Welfare, the Genuine Progress Indicator, and the Sustainable Net Benefit Index. It is argued that a consistent and more robust set of valuation techniques is required in order for these alternative indexes to gain broad acceptability.