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The Human Development Index as a Criterion for Optimal Planning

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  • Merwan Engineer
  • Ian King
  • Nilanjana Roy

Abstract

Planning strategies that maximize the Human Development Index (HDI) tend towards minimizing consumption and maximizing non-investment expenditures on education and health. Interestingly, such strategies also tend towards equitable outcomes, even though inequality aversion is not modelled in the HDI. A problematic feature of strategies that maximize the HDI is that the income component in the index only role is to distort the allocation between health and education expenditure. Because the income component does not play its intended role of securing resources for a decent standard of living, we argue that it is better to drop income from the index in considering optimal plans. Alternatively, we consider net income, income net of education and health expenditures, as indicator of capabilities not already reflected in the education and life expectancy components of the index. When net income is used in a modified HDI index, optimal plans yield a balance between allocations for consumption, education, and health. Finally, we calculate our modified indexes for OECD countries and compare them with the HDI.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1041.

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Length: 27 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mlb:wpaper:1041

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Keywords: Consumption; Human development index; Income; Inequality; Planning;

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References

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  1. Angus Deaton, 2001. "Health, Inequality, and Economic Development," NBER Working Papers 8318, National Bureau of Economic Research, Inc.
  2. James Foster & Luis Lopez-Calva & Miguel Szekely, 2005. "Measuring the Distribution of Human Development: methodology and an application to Mexico," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 6(1), pages 5-25.
  3. Sudhir Anand & Martin Ravallion, 1993. "Human Development in Poor Countries: On the Role of Private Incomes and Public Services," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 133-150, Winter.
  4. Lars Osberg & Andrew Sharpe, 2005. "How Should We Measure The "Economic" Aspects Of Well-Being? ," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(2), pages 311-336, 06.
  5. Sen, Amartya, 1981. "Public Action and the Quality of Life in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 43(4), pages 287-319, November.
  6. Sudhir Anand & Amartya Sen, 2000. "The Income Component of the Human Development Index," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 1(1), pages 83-106.
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Cited by:
  1. Merwan Engineer & Nilanjana Roy & Sari Fink, 2010. "Healthy Human Development Indices," Department Discussion Papers 1001, Department of Economics, University of Victoria.
  2. Merwan Engineer & Ian King, 2010. "Maximizing Human Development," Department of Economics - Working Papers Series 1111, The University of Melbourne.
  3. David Mayer-Foulkes, 2011. "A Causal Panorama of Cross-Country Human Development," DEGIT Conference Papers c016_049, DEGIT, Dynamics, Economic Growth, and International Trade.

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