A Multiplicative Human Development Index
This working paper provides an axiomatic foundation of a multiplicative human development index as an alternative to the standard additive one. There are three key advantages that derive from our multiplicative formulation: one, that it is a theoretically wellfounded measure; two, that it does not impose the restriction of having a constant rate of substitution between health, education, and income; and three, that it allows the introduction of distributive considerations. We also present a comparative analysis between the additive and the multiplicative indices, using the 2006 data corresponding to 125 countries. The empirical study illustrates well how our perception of human development depends on the aggregation formula.
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