The Poverty-Adjusted Life Expectancy index: a consistent aggregation of the quantity and the quality of life

Poverty and mortality are arguably the two major sources of well-being losses. Most mainstream measures of human development capturing these two dimensions aggregate them in an ad-hoc and controversial way. In this paper, we propose a new indicator aggregating the poverty and the mortality observed in a given period, which we call the poverty-adjusted life-expectancy (PALE). This indicator is based on a single normative parameter that transparently captures the trade-off between well-being losses from being poor or from being dead. We first show that PALE follows naturally from the expected life-cycle utility approach a la Harsanyi (1953). Empirically, we then proceed to between countries or across time comparisons and focus on those situations in which poverty and mortality provide conflicting evaluations. Once we assume that being poor is (at least weakly) preferable to being dead, we show that about a third of these conflicting comparisons can be unambiguously ranked by PALE. Finally, we show that our index naturally defines a new and simple index of multidimensional poverty, the expected deprivation index, which aggregates poverty and premature mortality in a consistent way.