Jan 25, 2011


Troubling Tradeoffs in the New Human Development Index

  • Jan 25, 2011
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  • The 20th United Nations Human Development Report recently introduced a new version of its famous Human Development Index (HDI).

    The HDI aggregates country-level attainments in life expectancy, schooling and income per capita. Each year's rankings by the HDI are keenly watched by rich and poor countries alike. The main change in the 2010 HDI is that it no longer allows its three components to perfectly substitute for each other. However, the new index also comes with some unintended and undesirable properties, according to a new working paper by Martin Ravallion.

    Most users will not realize that the new HDI has greatly reduced its implicit weight on longevity in poor countries, relative to rich ones. A poor country experiencing falling life expectancy due to, say, a collapse in its health-care system could still see its HDI improve with even a small rate of economic growth.

    By contrast, the new HDI's valuations of the gains from extra schooling seem unreasonably high -- many times greater than the economic returns to schooling. These troubling tradeoffs could have been largely avoided using a different aggregation function for the HDI, while still allowing imperfect substitution. There are some difficult value judgments to be made in constructing and assessing the HDI, but it would be a welcome step to make its assumed tradeoffs more explicit.

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