A class of distribution and association sensitive multidimensional welfare indices

Abstract

This paper axiomatically characterizes a class of two-parameter generalized mean social welfare indices having two or more dimensions of well-being. These indices, under appropriate parametric restrictions, are sensitive to two distinct forms of inter-personal inequality. The first form of inequality is concerned with the dispersion of each dimensional achievement across the population. The second is concerned with the association or correlation across dimensions, reflecting the observation that the correlation of individual components of well-being across dimensions is relevant for social welfare evaluation. It is shown that many existing multidimensional welfare indices are closely related to this new class. Statistical tests are developed to verify the significance of the evaluations generated by these indices. Finally, the class of indices is applied to Indonesian data to analyze the impact on financial crisis on the country’s social welfare using two waves of Indonesian Family Life Surveys (IFLS)