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The Human Development Index as a Criterion for Optimal Planning

Merwan Engineer (), Ian King () and Nilanjana Roy

No 1041, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Planning strategies that maximize the Human Development Index (HDI) tend towards minimizing consumption and maximizing non-investment expenditures on education and health. Interestingly, such strategies also tend towards equitable outcomes, even though inequality aversion is not modelled in the HDI. A problematic feature of strategies that maximize the HDI is that the income component in the index only role is to distort the allocation between health and education expenditure. Because the income component does not play its intended role of securing resources for a decent standard of living, we argue that it is better to drop income from the index in considering optimal plans. Alternatively, we consider net income, income net of education and health expenditures, as indicator of capabilities not already reflected in the education and life expectancy components of the index. When net income is used in a modified HDI index, optimal plans yield a balance between allocations for consumption, education, and health. Finally, we calculate our modified indexes for OECD countries and compare them with the HDI.

Keywords: Consumption; Human development index; Income; Inequality; Planning (search for similar items in EconPapers)
JEL-codes: O15 O21 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2008
New Economics Papers: this item is included in nep-dev, nep-edu, nep-hap, nep-hrm and nep-pke
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