Beyond Gdp Paper

Special attention is inclined to recent developments in the analysis of sustainability, in the moot of blessedness, in the system of genial choice and fair aloneocation, and in the capability shape up. It is suggested in the final result that, although convergence toward a consensual approach is not impossible, for the moment not one but three alternatives to gross domestic product ar worth developing. ( JEL I31, E23, E01) 1. inlet GDP is recurrently criticized for being a poor indicator of accessible public assistance and, thitherfore, leading g e preciseplacenments astray in their assessment of economic policies. As is well k straightawayn, GDP statistics stride current economic aactivity but foreshorten wealth variation, international income flows, househ grizzly production of services, destruction of the natural environment, and legion(predicate) determinants of welfare such as the quality of complaisant relations, economic security broadsides and personal safe ty, health, and longevity.Even worse, GDP increases when convivial reciprocity is replaced by anonymous marketplace relations and when rising crime, pollution, catastrophes, or health hazards trigger * Fleurbaey CNRS, University Paris Descartes, stub (Universite de Louvain) and IDEP. Comments, suggestions and advice by S. Alkire, G. Asheim, A. Atkinson, A. Deaton, E. Diewert, R. Guesnerie, D. Kahneman, A. Krueger, I. Robeyns, P. Schreyer, three nurtureees and Roger Gordon (the Editor) are gratefully acknowledged. defensive or secure expenditures.Not surprisingly, the construction of better indicators of favorable welfare is also, recurrently, a hot jazz in public debate and a concern for politicians and governments. The last two disco biscuits have witnessed an explosion in the number of alternative indicators and a peck of initiatives from important institutions such as the OECD, the UNDP, the European Unionmore tardily the French government has appointed a committee, cha ired by Joseph E. Stiglitz and including four other(a) Nobel Prize winners, to propose new indicators of economic performance and social progress. In the meantime, welfare economics1 has burgeoned in assorted directions, involving the system of social choice, the speculation of 1 The expression welfare economics is used here in a very broad sense, including all branches of economics that bear on the commentary of criteria for the valuation of social states and public policies. It is not restricted to the narrow throttle of Old and New (or New New) Welfare Economics. 1029 1030 Journal of Economic Literature, Vol.XLVII (December 2009) is lots less supported by economic theory than is commonly assumed. The consultation of this approach to intertemporal welfare as attempted in green history adds even more complications. In view of recent developments in the theory of social choice and fairness, it will be argued that the idea of a exchange by reversal GDP is still defendab le but implies different accounting methods than ordinarily thought. Second, in that location is the idea of Gross National Happiness, which has been revived by the burgeoning happiness studies.It will be argued here that the happiness revolution might, instead of speech about the return of utility, ultimately condemn this concept for being simplistic, and detect that subjective eudaemonia cannot serve as a metric for social evaluation without serious precautions. Third, there is the capability approach proposed by Amartya Sen, in the beginning as a framework for thinking rather than a exact method of measurement. This approach has now inspired a vvariety of applications, but close to of its premoters are reluctant to seek a artificial index, a celebrated exception being the Human Development Index (HDI).It will be argued here that a key aspect of this problem is whether individual valuations of the applicable dimensions of capability can and should be taken into account a n issue over which a dialogue with the two previous approaches might prove very useful. Fourth, there is the growing number of synthetic indicators that, following the lead of the HDI, are constructed as weighted averages of summary measures of social performance in motley domains.It will be argued here that, if the three other approaches were fully exploited, there would be little reason to keep this fourth approach awake(p) because it is ill-equipped to take account of the distribution of well-being and advantage among the members of society. The writing is structured as follows. Sections 24 deal with monetary measures that are linked to the project of a corrected fair allocation, the capability approach, the study of happiness and its determinants, in conjunction with new developments in the philosophy of social justice and the psychology of well-being.These conceptual developments provide new analytical tools that may be directly useful for concrete measurements. About a dec ade ago, Daniel T. Slesnick (1998) made the following observation While centrally important to many a(prenominal) problems of economic analysis, confusion persists concerning the relationship between commonly used welfare indicators and well-established theoretical formulations (p. 2108). It is probably safe to say that much the same now holds about the relationship between concrete measures of welfareold, new, and potentialand upto-date theories.It appears seasonable to ask what the existing academic literature has to say about alternatives to GDP. The practical importance of a measure of social welfare can only be overstated. Ppolicy decisions, cost make headway analyses, international comparisons, measures of growth, and inequality studies constantly refer to evaluations of individual and collective wellbeing. The fact that monetary measures still predominate in all such contexts is commonly interpreted as imposed by the lack of a better index rather than reflecting a cocksu re consensus.The purpose of this paper is, in the light of state-of-the-art welfare economics, to break down the pros and cons of the main alternative approaches to the measurement of social welfare from the perspective of ppolicy evaluation as well as international and intertemporal comparisons. Four approaches are discussed here. First, there is the idea of a corrected GDP that would take account, in particular, of nonmarket aspects of well-being and of sustainability concerns. As will be explained here, a basic problem for this approach is that its starting point, national income, as a candidate for a measure of social welfare,Fleurbaey Beyond GDP The Quest for a Measure of genial Welfare GDP. Section 2 revisits the classical results involving the value of total inspiration and usually invoked in justification of GDP-like measures. This appears important because some of these results are often exaggerated, while others are little known or even nonresistant of developments in future research. Section 3 is devoted to the intertemporal extension of this approach, as featured in the Net National Product (NNP) and green accounting.Section 4 turns to measures based on willingness-to-pay and moneymetric utilities, highlighting the connection with recent developments in the theory of social choice and fairness. This section also briefly discusses costbenefit analysis, which is an important tool for ppolicy evaluation. Sections 57 are devoted to the nonmonetary approaches, namely, synthetic indicators such as the HDI (section 5), happiness studies and the various possible indexes of subjective well-being (section 6), and the capability approach (section 7).Section 8 makes concluding remarks about the relative strengths and weaknesses of the various approaches analyzed in the paper and the prospects for future developments and applications. 2. Monetary Aggregates Revisited The project of correcting GDP has been often understood, after William D. Nordhaus and Jam es Tobins (1973) seminal work, as adding or subtracting terms that have the same structure as GDP, i. e. , monetary aggregates computed as quantities valued at market prices or at imputed prices in national market prices are not available. As we will see in this section, economic theory is much less supportive of this approach than usually 2 Nordhaus and Tobin (1973) set out to compute a comprehensive measure of the annual real consumption of households. Consumption is intended to include all goods and services, marketed or not, valued at market prices or at their analogous in oopportunity costs to consumers (p. 24). 1031 thought by most users of national accounts. some official reports swiftly gloss over the fact that economic theory has established total income as a good index of social welfare under some assumptions (which are usually left unspecified).To be sure, there is a venerable tradition of economic theory that seeks to get in touch social welfare to the value of total income or total consumption. 3 Most of that theory, however, deals with the limited issue of determining the sign of the welfare change rather than its magnitude, not to mention the level of welfare itself. In this perspective, the general use of GDP per capita, corrected or uncorrected, as a primeval measure allowing ppercentage scaling of differences and variations appears problematic. 4 In this section, I review the old and recent arguments for and against monetary aggregates as social welfare indicators. . 1 A Revealed Preference Argument Start from the revealed preference argument that, assuming local anesthetic nonsatiation, if a consumer chooses a commodity bundle x (with ? different commodities) in a budget set defined by the price sender p, then x is revealed favourite(a) to all bundles y such that py px. If x is interior and assuming differentiability, for an infinitesimal change dx, x + dx is strictly preferred to x by the consumer if and only if pdx 0. Note the im portance of the interiority assumption here.