Beyond GDP: Simple Preference-Based Wellbeing Indicators

We develop a unified and operational preference-based framework for constructing simple headline indicators of current wellbeing. High-profile Beyond GDP indicators lack solid conceptual foundations and are therefore based on ad-hoc choices. As a result, they risk making comparisons that people would find implausible. Beyond GDP indicators grounded in preference-based social welfare functions (SWF) offer a solution to this issue, but current proposals are hard to communicate and pay insufficient attention to data constraints, so they remain largely confined to academic circles. Our framework builds up a headline indicator through a sequence of preference-based adjustments to GDP per capita: first for average non-monetary achievements, then for inequality in the distribution of wellbeing, and finally for monetary poverty and non-monetary deprivations. This last adjustment is a central contribution of the paper: existing Beyond GDP indicators typically adjust for average achievements and, in some cases, for inequality, but they generally leave out income poverty and non-monetary deprivation, even though these are dimensions that policymakers care about deeply and that are central to how societies experience wellbeing. The framework is modular and agnostic about which wellbeing aspects to integrate, and it gives its preference parameters a clear, elicitable interpretation. An empirical illustration for a large set of countries shows how the framework can be applied, and how much rankings and trends change once achievements in nonmonetary dimensions such as life expectancy, inequality, and then poverty and deprivation, are taken into account.