Abstract
Policymakers have begun looking for multidimensional alternatives to income-based measures for assessing well-being in societies. The Human Development Index (HDI) and related composite indices have been widely criticized in the welfare economic literature, yet are still some of the most influential income-alternatives in the research and policy arena. What are the theoretical links that bridge the gap between these composite indices and the criticisms levelled at them? This paper introduces the “preference index approach,” a multidimensional measure bringing together the “equivalence approach” and the “distance function” in welfare economic theory. It retains convenient similarities with HDI-type composite indices, but assesses well-being in a way that reflects interpersonal differences in preferences between dimensions of well-being, whilst retaining comparability of well-being levels between individuals. The approach is applied empirically with data from the British Household Panel Survey (BHPS) to estimate different preference types between well-being dimensions. The empirical application finds that preferences differ by age, education level and unemployment status, and finds a weaker preference for the health and income dimension within older groups. Across all groups, health is strongly prioritized over income. When preference heterogeneities are taken into account, the picture of well-being looks quite different than that painted by standard welfare measures.
Highlights
There has been a recent surge in interest in the question of how to move beyond purely income-based measures of welfare and towards measuring multidimensional wellbeing
This paper argues that these objections to the formulation of the Human Development Index (HDI) and similar indices can be overcome by adopting the following two modifications: (1) altering the sequencing of the aggregation procedure, which the Inequality-adjusted HDI already takes a step towards, and (2) adopting a preference-driven weighting scheme
(2) For each individual use Equation (2), with the choice of parameter ρ informed by the estimations in step 1, to compute the equivalent bundle on the reference path defined in Section 2.4 that corresponds to her actual bundle of multidimensional well-being attainments—these are the preference index values
Summary
There has been a recent surge in interest in the question of how to move beyond purely income-based measures of welfare and towards measuring multidimensional wellbeing. With its formulation as a geometric mean aggregation of average population-level indicators, the HDI has been criticized as being “a pale reflection of the general and ambitious methodology proposed by the capability perspective” (Fleurbaey and Blanchet 2013, xiv). Despite this and the many other criticisms levelled at the HDI (in particular see McGillivray and White 1993; Sagar and Najam 1998; Ravallion 2012b) it is still perhaps the most influential measure of multidimensional well-being, being cited extensively in policy and research and inspiring a proliferation of new measures with similar aggregation methodologies..
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