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The inclusive wealth index. A critical appraisal

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  • Roman, Philippe
  • Thiry, Géraldine

Abstract

Among recent high-profile propositions to revise national accounts and to provide new indicators of sustainability and well-being, the inclusive wealth framework and the related inclusive wealth index (IWI) undoubtedly stand out as one of the most promising endeavours. Built up at the confluence of welfare, development and sustainability economics, the indicator has been designed to bring information about the wealth of nations and their sustainability, in a comprehensive way. The inclusive wealth framework is nevertheless fraught with limitations, due to questionable theoretical assumptions, gaps in data availability, unrealistic assumptions about the future and inability to account for distributional issues. We propose a non-exhaustive critical appraisal of the index and its underlying framework. We conclude that these limitations undermine its capacity to fulfil the requirements of a satisfactory sustainability indicator. We argue that most problems lie in the substantial discrepancy between the inclusive ambition of the indicator and the scarce means to implement it. Whereas the interconnectedness of the various assets that constitute wealth as well as their complex evolution through time are acknowledged by the proponents of inclusive wealth, the way the IWI is computed is rather a mere addition of layers of actuarial-like monetary values for a (not inclusive yet) range of capital assets. Caution is thus warranted while using such an approach, and shorter-range alternatives to pursue similar goals are proposed.

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  • Roman, Philippe & Thiry, Géraldine, 2016. "The inclusive wealth index. A critical appraisal," Ecological Economics, Elsevier, vol. 124(C), pages 185-192.
    • Handle: RePEc:eee:ecolec:v:124:y:2016:i:c:p:185-192
    DOI: 10.1016/j.ecolecon.2015.12.008
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    2. Ribas, Aline & Lucena, André F.P. & Schaeffer, Roberto, 2017. "Bridging the energy divide and securing higher collective well-being in a climate-constrained world," Energy Policy, Elsevier, vol. 108(C), pages 435-450.
    3. Olivier E. Malay, 2020. "How to articulate beyond GDP and businesses’ social and environmental indicators?," LIDAM Discussion Papers IRES 2020014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Yagi, Michiyuki & Managi, Shunsuke, 2018. "Shadow price of patent stock as knowledge stock: Time and country heterogeneity," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 43-61.
    5. Yamaguchi, Rintaro, 2020. "Available capital, utilized capital, and shadow prices in inclusive wealth accounting," Ecological Economics, Elsevier, vol. 169(C).
    6. Olivier E. Malay, 2021. "How to Articulate Beyond GDP and Businesses’ Social and Environmental Indicators?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 155(1), pages 1-25, May.
    7. Takuya Shimamura & Takeshi Mizunoya, 2020. "Sustainability Prediction Model for Capital City Relocation in Indonesia Based on Inclusive Wealth and System Dynamics," Sustainability, MDPI, vol. 12(10), pages 1-25, May.
    8. Didier Blanchet & Marc Fleurbaey, 2020. "Building Indicators for Inclusive Growth and its Sustainability: What Can the National Accounts Offer and How Can They Be Supplemented?," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 517-518-5, pages 9-24.
    9. Topf, Julie & Schultz, Leonardo A. & Silva, José Maria Cardoso da, 2023. "An index to measure the sustainability of place-based development pathways," Ecological Economics, Elsevier, vol. 204(PA).
    10. Kibria, Abu S.M.G. & Costanza, Robert & Gasparatos, Alexandros & Soto, José, 2022. "A composite human wellbeing index for ecosystem-dependent communities: A case study in the Sundarbans, Bangladesh," Ecosystem Services, Elsevier, vol. 53(C).
    11. Yamaguchi, Rintaro & Managi, Shunsuke, 2019. "Backward- and Forward-looking Shadow Prices in Inclusive Wealth Accounting: An Example of Renewable Energy Capital," Ecological Economics, Elsevier, vol. 156(C), pages 337-349.
    12. Fan, Jing-Li & Li, Kai & Zhang, Xian & Hu, Jiawei & Hubacek, Klaus & Da, Yabin & Liang, Xi & Cheng, Danyang, 2022. "Measuring sustainability: Development and application of the Inclusive Wealth Index in China," Ecological Economics, Elsevier, vol. 195(C).

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    More about this item

    Keywords

    Inclusive wealth; Sustainability; Well-being; Indicators; Green accounting;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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