An Alternative Method of Component Aggregation Across Multidimensional Well-Being Indicators

Abstract

There is considerable debate on the methods used to compute composite indicators of well-being. The fact that most of the weights of the principal subcomponents of the composite indicators are equal and that the determinants of well-being are, to a certain extent, connected, makes the use of ranks of these subcomponents in computing the country ranks of well-being a valid approach. A comparison of the actual ranks with ranks computed as averages of the ranks of subcomponent indexes for three well-known indicators of Well-being, Human Development Index, Legatum Prosperity Index, and Social Progress Index, yield results that are almost similar. This calls into question the use of weighted averages of actual values of indicators, as very high values for an indicator increase a country’s relative rank, despite much lower performance. Our proposed approach will help achieve more robust/reliable rankings of countries and tackle the issues posed by extreme values or non-normal distributions of the variables used.

Keywords: composite indicators, aggregation methods, indicator methodology