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An Assessment of Weighting Methodologies for Composite Indicators: The case of the Index of Economic Well-being

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  • Andrew Sharpe

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  • Brendon Andrews
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    Abstract

    The Index of Economic Well-Being (IEWB) – a composite indicator consisting of consumption, wealth, equality, and economic security – underwent several changes in the weighting of its components. For example, the final aggregation of the IEWB was changed to equal weighting after the IEWB was criticized for having a bias against sustainability; however, all weighting schemes have both advantages and shortcomings. To isolate the preferred ordinal ranking for the results, strong and weak dominance rules were established for countries across several observed weighting schemes, and each of these rules were ranked in all possible ways. An 'iterative dominance equilibrium' was computed for comparison to observed weighting schemes. Constrained data envelopment analysis (CDEA) performed best, yet CDEA is not ideal for comparisons across countries. Among explicit weights, the original weights of the IEWB were best. Although the original weights are supported, they were controversial – a shift to equal weights mitigated this controversial – it appears equal weights remain least objectionable.

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    Bibliographic Info

    Paper provided by Centre for the Study of Living Standards in its series CSLS Research Reports with number 2012-10.

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    Date of creation: Jan 2013
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    Handle: RePEc:sls:resrep:1210

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    1. Laurens Cherchye & Erwin Oghe & Tom Van Puyenbroeck, 2005. "Robust human development rankings," Public Economics Working Paper Series ces0516, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
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    7. Lars Osberg & Andrew Sharpe, 2010. "The Index of Economic Well-Being," Challenge, M.E. Sharpe, Inc., vol. 53(4), pages 25-42, July.
    8. Laurens Cherchye & Wim Moesen & Nicky Rogge & Tom Van Puyenbroeck & Michaela Saisana & A. Saltelli & R. Liska & S. Tarantola, 2006. "Creating Composite Indicators with DEA and Robustness Analysis: the case of the Technology Achievement Index," Public Economics Working Paper Series ces0613, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
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