We consider the optimality of the weighting scheme used to construct the Human Development Index (HDI) using an approach that relies on consistent tests for stochastic dominance efficiency. We consider consistent tests for stochastic dominance efficiency of a given hybrid composite index with respect to all possible indices constructed from a set of individual components. The results show that the equally weighted (fixed weights) HDI is not optimal and that education needs to be weighted considerably more in the best (optimal) indicator of welfare.
This work is co-authored by Mehmet Pinar, Thanasis Stengos (University of Guelph) and Nikolas Topaloglou (Athens University of Economics and Business).