About the Book
In spite of recurrent criticism and an impressive production of alternative indicators by scholars and NGOs, GDP remains the central indicator of countries' success. This book revisits the foundations of indicators of social welfare, and critically examines the four main alternatives to GDP that have been proposed: composite indicators, subjective well-being indexes, capabilities (the underlying philosophy of the Human Development Index), and equivalent incomes.
Its provocative thesis is that the problem with GDP is not that it uses a monetary metric but that it focuses on a narrow set of aspects of individual lives. It is actually possible to build an
alternative, more comprehensive, monetary indicator that takes income as its first benchmark and adds or subtracts corrections that represent the benefit or cost of non-market aspects of individual lives. Such a measure can respect the values and preferences of the people and give as much weight as they do to the non-market dimensions. A further provocative idea is that, in contrast, most of the currently available alternative indicators, including subjective well-being indexes,
are not as respectful of people's values because, like GDP, they are too narrow and give specific weights to the various dimensions of life in a more uniform way, without taking account of the
diversity of views on life in the population. The popular attraction that such alternative indicators derive from being non-monetary is therefore based on equivocation. Moreover, it is argued in this book that "greening" GDP and relative indicators is not the proper way to incorporate sustainability concerns. Sustainability involves predicting possible future paths, therefore different indicators than those assessing the current situation. While various indicators have been
popular (adjusted net savings, ecological footprint), none of them involves the necessary forecasting effort that a proper evaluation of possible futures requires.
Table of Contents:
Contents
vii
Preface ix
Introduction: The four musketeers xi
1 A wealth of indicators 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 A bird?s eye view . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Aggregating the non-aggregatable? . . . . . . . . . . . . . . . . . 7
1.4 Correcting GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.5 Sustainability assessment: weak or strong? . . . . . . . . . . . . . 16
1.6 Coping with multidimensionality: dashboards . . . . . . . . . . . 24
1.7 An overhanging question: how far can aggregation go? . . . . . . 27
2 Measuring sustainability 29
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.2 Wealth and sustainable well-being . . . . . . . . . . . . . . . . . 33
2.2.1 Discounting future streams of well-being? . . . . . . . . . 33
2.2.2 From intertemporal well-being to sustainable consumption 36
2.3 The savings approach: a reference framework . . . . . . . . . . . 41
2.3.1 Shifting the focus to sustainability : why? . . . . . . . . . 41
2.3.2 Assessing sustainability in imperfect but predictable economies. 43
2.3.3 An example. . . . . . . . . . . . . . . . . . . . . . . . . . 46
2.4 The savings approach: several pending problems . . . . . . . . . 50
2.4.1 Monetization in practice . . . . . . . . . . . . . . . . . . . 51
2.4.2 Behavioral indeterminacy or when ?weak?indicators can
turn out too strong . . . . . . . . . . . . . . . . . . . . . . 53
2.4.3 Technological and normative uncertainties . . . . . . . . . 56
2.4.4 An additional problem: the cross-national dimension of
unsustainability . . . . . . . . . . . . . . . . . . . . . . . . 58
2.5 Conclusion: where to go from there? . . . . . . . . . . . . . . . . 61
iii
iv CONTENTS
3 A price for everything? 65
3.1 A revealed preference argument . . . . . . . . . . . . . . . . . . . 66
3.1.1 The argument for an individual consumer . . . . . . . . . 67
3.1.2 Extending the argument to social welfare through a rep-
resentative agent . . . . . . . . . . . . . . . . . . . . . . . 69
3.1.3 Extending the argument to social welfare with an opti-
mality assumption . . . . . . . . . . . . . . . . . . . . . . 71
3.2 A variant of the revealed preference argument . . . . . . . . . . . 73
3.3 The theory of index numbers . . . . . . . . . . . . . . . . . . . . 75
3.3.1 An axiomatic approach . . . . . . . . . . . . . . . . . . . 76
3.3.2 Approximating welfare changes . . . . . . . . . . . . . . . 78
3.4 Decomposing welfare . . . . . . . . . . . . . . . . . . . . . . . . . 82
3.4.1 A ?rst decomposition, with the social expenditure function 82
3.4.2 A second decomposition, in terms of e¢ ciency and equity 84
3.4.3 A new decomposition, based on Bergson curves . . . . . . 87
3.4.4 Another decomposition, for small variations . . . . . . . . 90
3.5 Speci?c problems with imputed prices and full income . . . . . . 92
3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
4 Equivalent income, or how to value what has no price 99
4.1 Money-metric utility and equivalent income . . . . . . . . . . . . 101
4.2 Knock-out criticism? . . . . . . . . . . . . . . . . . . . . . . . . . 105
4.2.1 Not welfarist enough . . . . . . . . . . . . . . . . . . . . . 105
4.2.2 Too welfarist . . . . . . . . . . . . . . . . . . . . . . . . . 106
4.2.3 Potentially regressive . . . . . . . . . . . . . . . . . . . . . 108
4.2.4 Reference dependent . . . . . . . . . . . . . . . . . . . . . 109
4.2.5 Arrow?s coup de grâce . . . . . . . . . . . . . . . . . . . . 112
4.3 Fairness to the rescue . . . . . . . . . . . . . . . . . . . . . . . . 115
4.3.1 The equivalence approach in fair allocation theory . . . . 116
4.3.2 Arrow Independence is not compelling . . . . . . . . . . . 119
4.3.3 References need not be arbitrary . . . . . . . . . . . . . . 121
4.3.4 The right dose of welfarism . . . . . . . . . . . . . . . . . 123
4.3.5 Bundle dominance is unacceptable . . . . . . . . . . . . . 125
4.3.6 Egalitarianism is demanding . . . . . . . . . . . . . . . . 129
4.4 Social welfare decomposition . . . . . . . . . . . . . . . . . . . . 133
4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
5 Is happiness all that matters? 139
5.1 The Easterlin paradox: Have we been wrong for 70,000 years? . . 141
5.1.1 Bentham is back . . . . . . . . . . . . . . . . . . . . . . . 142
5.1.2 The debate about subjective welfarism . . . . . . . . . . . 145
5.1.3 Is happiness the ultimate goal? . . . . . . . . . . . . . . . 147
5.1.4 The key objection to subjective scores . . . . . . . . . . . 149
5.2 A theory of subjective well-being . . . . . . . . . . . . . . . . . . 151
5.2.1 A¤ects and judgments . . . . . . . . . . . . . . . . . . . . 152
5.2.2 The three problems of the respondent . . . . . . . . . . . 153
CONTENTS v
5.2.3 Heterogeneous and shifting standards . . . . . . . . . . . 160
5.2.4 What do people care about? . . . . . . . . . . . . . . . . 165
5.2.5 Comparisons across preferences . . . . . . . . . . . . . . . 167
5.3 Making use of happiness data . . . . . . . . . . . . . . . . . . . . 167
5.3.1 Proposed indicators . . . . . . . . . . . . . . . . . . . . . 168
5.3.2 Putting a¤ects in their place . . . . . . . . . . . . . . . . 169
5.3.3 Identi?cation problems . . . . . . . . . . . . . . . . . . . . 170
5.3.4 Can happiness data be improved? . . . . . . . . . . . . . 172
5.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
6 Empowering capabilities 177
6.1 The capability approach . . . . . . . . . . . . . . . . . . . . . . . 179
6.1.1 From basic needs to capabilities . . . . . . . . . . . . . . . 179
6.1.2 Functionings, between ?opulence?and ?utility? . . . . . . 180
6.1.3 From functionings to capabilities . . . . . . . . . . . . . . 181
6.2 Capabilities as opportunities . . . . . . . . . . . . . . . . . . . . 182
6.2.1 Valuing sets . . . . . . . . . . . . . . . . . . . . . . . . . . 182
6.2.2 The relevant aspects of opportunities . . . . . . . . . . . . 184
6.2.3 Shaping opportunity sets . . . . . . . . . . . . . . . . . . 187
6.2.4 Equality against set valuation . . . . . . . . . . . . . . . . 189
6.2.5 Why capabilities? . . . . . . . . . . . . . . . . . . . . . . 193
6.3 The valuation issue . . . . . . . . . . . . . . . . . . . . . . . . . . 195
6.3.1 The intersection approach . . . . . . . . . . . . . . . . . . 196
6.3.2 Disagreement and respect for diversity . . . . . . . . . . . 198
6.3.3 Implications of respect for personal preferences . . . . . . 200
6.4 Is the CA a separate approach? . . . . . . . . . . . . . . . . . . . 203
Conclusion: How to converge on a multiplicity 207
Why synthetic indicators? . . . . . . . . . . . . . . . . . . . . . . . . . 207
Shortcuts and pitfalls . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Vices and virtues of monetary indicators . . . . . . . . . . . . . . . . . 211
A multiplicity of synthetic indicators . . . . . . . . . . . . . . . . . . . 214
Sustainability warnings . . . . . . . . . . . . . . . . . . . . . . . . . . 215
A A theory of the reference for equivalent incomes 219
A.1 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
A.2 Reference operators . . . . . . . . . . . . . . . . . . . . . . . . . . 220
A.3 Non-market goods . . . . . . . . . . . . . . . . . . . . . . . . . . 221
A.4 Market prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
A.5 The household problem . . . . . . . . . . . . . . . . . . . . . . . 229
B Proofs 233
B.1 A Paretian rank-dependent criterion. . . . . . . . . . . . . . . . . 233
B.2 Reference-price independence . . . . . . . . . . . . . . . . . . . . 236
B.3 A simple proof of Arrow?s theorem in an economic framework . . 238
vi CONTENTS
Bibliography 241
About the Author :
Marc Fleurbaey is the Robert E. Kuenne Professor of Economics and Humanistic Studies, Professor of Public Affairs and the UniMarc Fleurbaey is Robert E. Kuenne Professor of Economics and Humanistic Studies and Professor of Public Affairs for the University Center for Human Values at Princeton University. Previously, he was Research Director at Centre National de la Recherche Scientifique, Professor of Economics at Université de Pau et des
Pays de l'Adour and Université de Cergy-Pontoise, as well as a visiting fellow at the London School of Economics and the University of Oxford. He was formerly the editor of Economics and Philosophy and is currently the
coordinating editor of Social Choice and Welfare.
Didier Blanchet belongs to the Institut National de la Statistique et des Études Economiques (Insee). He is Editor-in-Chief of Economie et Statistique and research affiliate to the Centre de Recherche en Économie et Statistique (Crest). Earlier positions included researcher at the Institut National d'Études Démographiques and head of Insee's Department of General Economic Studies.
versity Center for Human Values
Review :
"Fleurbaey and Blanchet have written a brilliant and deeply-learned survey of the ways to measure a society's condition. Among its many contributions, Beyond GDP offers a powerful defense of equivalent incomes as the core of a new approach--an approach that respects the diversity of individual preferences and the multiplicity of sources of human well-being."--Matthew Adler, Richard A. Horvitz Professor of Law and Professor of Philosophy and Public
Policy, Duke University
"Dissatisfaction with GDP has grown from a trickle to a torrent among policymakers, yet there has been no comprehensive treatment to which economists could turn to explore the technical and ethical underpinnings of measurement. Fleurbaey and Blanchet have filled the gap with this serious, readable, and sophisticated text. Beyond GDP will be essential reading for all economists interested in how the subject can incorporate new lessons from philosophy
and psychology. It is a milestone on the road to a new welfare economics."--Angus Deaton, Dwight D Eisenhower Professor of International Affairs, Professor of Economics and International Affairs, Woodrow Wilson
School, Princeton University
"The development of measures of social progress and well-being has been booming in recent decades, both in the academic world and in policy circles. In Beyond GDP, Fleurbaey and Blanchet discuss critically the most important arguments for various new approaches and measures in an analysis that is both theoretically sophisticated and practically relevant. A must-read for everyone (both academics and policy-makers) who is interested in moving 'beyond
GDP' with a better awareness of the underlying theoretical challenges."--Erik Schokkaert, Department of Economics, University of Leuven and CORE, Université catholique de Louvain
"In the burgeoning literature on alternative measures for GDP, Beyond GDP constitutes a milestone. Fleurbaey and Blanchet provide a consistent and thorough discussion of different approaches to the measurement of current social performance and future sustainability. Since their approach is robustly rooted in the development of economic theory over the last 60 years, it offers an integrated theoretical perspective on various branches of literature on
GDP, which are often treated in a disparate way. Simultaneously, their critical discussion of 'fixed points' in economic theory marks a breakthrough with considerable consequences. The combination of theoretical
rigor and pragmatic final conclusions is refreshing and stimulating for all those involved in the endeavor to go 'beyond GDP.'"--Frank Vandenbroucke, Professor, KULeuven; former Minister in the Belgian Government
"There have been a plethora of alternative indicators of social progress proposed as alternatives to GDP in the last four decades. Fleurbaey and Blanchet identify four approaches to constructing such measures and examine and critically evaluate the theoretical foundations for each approach in detail. The authors cogently argue for an equivalent income approach that has the virtue of being a monetary indicator that respects the diversity of preferences and
values in society. This masterful volume is essential reading for both scholars and practioners with interests in these issues."--John A. Weymark, Gertrude Conaway Vanderbilt Professor of Economics,
Vanderbilt University
"It has been widely accepted that GDP is neither a good measure of well-being nor sustainability. But any alternative metric suffers from various diseases, sometimes similar to those of the GDP. A new book by Marc Fleurbaey and Didier Blanchet brings new light to this issue; a rigorous and clear analytical treatment of the topic. While the authors are dedicated economists and philosophers, most parts are accessible and worth reading for those coming from a more
ecologically-minded perspective. Even if one disagrees with their carefully argued conclusions, this book still constitutes essential reading, sharpening the argument on what is welfare and how to
measure it. This book is essential and extremely pleasant reading for anyone interested in the substance of the "Beyond GDP" question. Even those who disagree with their arguments in favor of the equivalent-income approach will discover a wealth of material to sharpen their minds and to find intellectual satisfaction."--Ecological Economics
"The authors report on their quest for good indicators of social progress. In the book they delve into the ethical considerations and the economic theory behind 4 alternatives. LSE Review of Books recommends this book to policy makers and scholars of all social sciences, psychology, ecology and philosophy that are dissatisfied with GDP as a measure of social well-being. Using insights from philosophy, welfare economics and psychology, Beyond GDP is structured
around examining the pros and cons of four different approaches to measure social well-being, each with different degrees of paternalism and perfectionism. Get this book if you want to get up to speed
on how to go beyond GDP in the quest for a better indicator of national well-being. But be prepared for a demanding read, as you'll need a knowledge of microeconomics and growth theory beyond the undergraduate level."--LSE Review of Books
"There are many gems strewn throughout the book, including a superb discourse on index numbers, a refutation of egalitarianism as a criterion for social happiness, and a perceptive discussion of the drawbacks of discounting future social welfare... all told, this work will undoubtedly interest philosophers, psychologists, and ethicists, but above all economists, who are here shown the powers of deductive reasoning, the merits of scholarly diffidence, and the
dictum that economics 'is a method rather than a doctrine' (Keynes, 1922)." --Journal of Regional Science
