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Maximizing human development

  • Merwan Engineer
  • Ian King

The Human Development Index (HDI) is widely used as a measure of wellbeing. We examine the allocations implied by the maximization of this index using a standard growth model. Maximization leads to consumption (excluding education and health expenditures) being pushed to minimal levels. It also leads to the overaccumulation of education and/or health capital and possibly physical capital, relative to the standard golden rule. We propose an alternative specification for the HDI, where consumption replaces income as a proxy for decent standard of living. Maximization of this alternative implies a human development golden rule which balances consumption, education and health expenditure. We advocate the method of optimization subject to constraints for revealing the policy implications of taking an achievement measure and its underlying philosophy seriously.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 46 (2013)
Issue (Month): 2 (May)
Pages: 497-525

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Handle: RePEc:cje:issued:v:46:y:2013:i:2:p:497-525
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  1. repec:cup:cbooks:9780521806428 is not listed on IDEAS
  2. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  3. Charles Jones & Pete Klenow, 2010. "Beyond GDP? Welfare Across Countries and Time," Discussion Papers 10-001, Stanford Institute for Economic Policy Research.
  4. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  5. Merwan Engineer & Ian King & Nilanjana Roy, 2008. "The Human Development Index as a Criterion for Optimal Planning," Department of Economics - Working Papers Series 1041, The University of Melbourne.
  6. Krishna Mazumdar, 2003. "A New Approach to Human Development Index," Review of Social Economy, Taylor & Francis Journals, vol. 61(4), pages 535-549.
  7. Rivera, Berta & Currais, Luis, 1999. "Income Variation and Health Expenditure: Evidence for OECD Countries," Review of Development Economics, Wiley Blackwell, vol. 3(3), pages 258-67, October.
  8. repec:cup:cbooks:9780521001151 is not listed on IDEAS
  9. 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.
  10. King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
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