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Stochastic Dominance Approach to OECD’s Better Life Index

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Abstract

Ever since the inception of OECD’s Better Life Index in 2011, a string of literature have emerged offering different aggregation procedures for the 11 dimensions of the index encompassing the broad categories of material living standards and quality of life. What is the most optimistic weighting scheme that allows more countries to achieve better measured well-being outcomes? What is the most pessimistic weighting scheme that worsens outcomes for more countries? Stochastic dominance efficiency is a data driven aggregation method that allows us to answer such questions which may be beneficial to policy makers and researchers. We offer rankings of countries across dimensions as well as rankings based on a single composite index aggregating all dimensional indicators. This type of analysis not only presents an opportunity to examine the sensitivity associated with re-weighting indicators, but this approach also reveals which indicators are driving overall improvement in measured well-being and which ones are hindering it. We find that the worst-case scenario rankings are generally more correlated with the equal-weighting scheme. And the best-case scenario weights offer a far more equal distribution of achievements across countries.

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Notes

  1. For a survey of multidimensional approaches to measuring well-being, see Maasoumi (1999) or Greco et al. (2018)

  2. See Decancq and Lugo (2013) for an exposition of weighting well-being indicators in a multidimensional setting.

  3. Pinar et al. (2013) found that weighting education relatively more results in the most optimistic scenario for measured human development. This study was later followed up by Pinar et al. (2017a) who found that under the updated methodology of the UN, the health dimension gets weighted increasingly more over time in the most optimistic scenario.

  4. The Gini coeffcient for some vector of composite indices, \(x_1,\ldots ,x_n\), is computed as \(\frac{2}{\bar{x}n^2}\sum _{i=1}^n x_{(i)}(i-0.5)-1\), where \(\bar{x}\) is the mean and \(x_{(i)}\) is the ith order statistic of the vector (see, e.g., Davidson 2009).

  5. Labour market insecurity was introduced after 2015. Prior to that a similar but slightly different metric, job security, was used in its place that measured duration of employment tenure or probability of becoming unemployed.

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Authors and Affiliations

  1. Department of Economics, Ryerson University, 350 Victoria Street, Toronto, ON, M5B 2K3, Canada

    Tahsin Mehdi

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  1. Tahsin Mehdi
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Correspondence to Tahsin Mehdi.

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Mehdi, T. Stochastic Dominance Approach to OECD’s Better Life Index. Soc Indic Res 143, 917–954 (2019). https://doi.org/10.1007/s11205-018-2014-0

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