Monday, January 24, 2011

Martin Ravallion is unhappy with HDI -- Part II

The changes introduced in the new HDI have reduced its (seemingly low) valuations of longevity in poor countries even further. The Human Development Report’s implicit valuation on an extra year of life expectancy is now over 17,000 times higher in the richest country than in the poorest – a far greater difference than in their average income (which is 460 times higher in the richest country than the poorest). A poor country experiencing falling life expectancy due to (say) a collapse in its healthcare system could still see its HDI improve with even a small rate of economic growth.

A rich person will be able to afford to spend more to live longer than a poor person, and will typically do so. But how much should one build such inequalities into our assessment of a country’s progress in “human development”? That is a difficult question, which has certainly not been resolved here. However, given that the last 20 Human Development Reports have clearly intended to support a high value in development policymaking on attainments in health, it is puzzling that the 2010 Report has chosen a trade-off that puts such seemingly low value on the gains from longevity in poor countries. Possibly the construction of the HDI did not adequately consider what trade-offs were acceptable. Good intentions alone do not make for good measurement.

More by Martin Ravallion here. Here is a back-and-forth charges between Ravallion and Sabina Alkire about the new Multidimensional Poverty Index (MPI). Ravallion argues that the troubling tradeoffs could have been largely avoided using a different aggregation function for the HDI, while still allowing imperfect substitution.