Working Paper
A Framework for Incorporating Environmental Indicators to the Measurement of Human Well-Being

This study, relying on an economic-theoretical approach to index numbers, proposes a framework for incorporating environmental indicators to the measurement of human well-being. Furthermore this study also proposes an improvement index which alleviates the well-known deficiency of across-time comparison of the deprivation index. The advantage of the proposed index is that it does not require normative judgment in the selection of weights to aggregate over constituent indices. Rather, within an activity analysis framework, optimally chosen weights are determined by the data. In developing the index, due emphasis is put on production with negative externalities, and directional distance functions—a very recent analytical device—are employed as a major tool to construct quantity indexes and improvement indexes.