Journal of Economic Literature 2009, 47:4, 1029–1075 http:www.aeaweb.org/articles.php?doi=10.1257/jel.47.4.1029
Beyond GDP: The Quest for a Measure of Social Welfare
This paper critically examines the various approaches to the measurement of individual well-being and social welfare that have been considered for the construction of alternatives to GDP. Special attention is devoted to recent developments in the analysis of sustainability, in the study of happiness, in the theory of social choice and fair allocation, and in the capability approach. It is suggested in the conclusion that, although convergence toward a consensual approach is not impossible, for the moment not one but three alternatives to GDP are worth developing. ( JEL I31, E23, E01)
DP is recurrently criticized for being a poor indicator of social welfare and, therefore, leading governments astray in their assessment of economic policies. As is well known, GDP statistics measure current economic activity but ignore wealth variation, international income flows, household production of services, destruction of the natural environment, and many determinants of well-being such as the quality of social relations, economic security and personal safety, health, and longevity. Even worse, GDP increases when convivial reciprocity is replaced by anonymous market relations and when rising crime, pollution, catastrophes, or health hazards trigger * Fleurbaey: CNRS, University Paris Descartes, CORE (Université 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 referees and Roger Gordon (the Editor) are gratefully acknowledged.
defensive or repair expenditures. Not surprisingly, the construction of better indicators of social welfare is also, recurrently, a hot issue in public debate and a concern for politicians and governments. The last two decades have witnessed an explosion in the number of alternative indicators and a surge of initiatives from important institutions such as the OECD, the UNDP, the European Union—more recently the French government has appointed a committee, chaired by Joseph E. Stiglitz and including four other Nobel Prize winners, to propose new indicators of “economic performance and social progress.” In the meantime, welfare economics1 has burgeoned in various directions, involving the theory of social choice, the theory of 1 The expression “welfare economics” is used here in a very broad sense, including all branches of economics that bear on the definition of criteria for the evaluation of social states and public policies. It is not restricted to the narrow confines of Old and New (or New New) Welfare Economics.
Journal of Economic Literature, Vol. XLVII (December 2009) is much less supported by economic theory than is commonly assumed. The extension of this approach to intertemporal welfare as attempted in “green” accounting 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 “corrected GDP” is still defendable but implies different accounting methods than usually thought. Second, there 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 bringing about the return of “utility,” ultimately condemn this concept for being simplistic, and reveal that subjective well-being cannot serve as a metric for social evaluation without serious precautions. Third, there is the “capability approach ” proposed by Amartya Sen, primarily as a framework for thinking rather than a precise method of measurement. This approach has now inspired a variety of applications, but most of its promoters are reluctant to seek a synthetic index, a famous exception...
Please join StudyMode to read the full document