On the Methodology of Isew, Gpi and Related Measures: Some Constructive Suggestions and Some Doubt on the 'Threshold' Hypothesis

Abstract

Existing country studies of the Index of Sustainable Economic Welfare (ISEW), the Genuine Progress Indicator (GPI) and related measures, while sharing the same basic methodological approach, differ with respect to the valuation of important items. This paper provides a critical, but constructive, discussion of the various methods used for the valuation of non-renewable resource depletion and long-term environmental damage and for the weighting of consumption expenditures for income inequalities. Several recommendations are given on how to improve the methodology for future updates of existing studies or for the construction of new measures. Sensitivity analysis shows that if these recommendations are followed for the valuation of resource depletion and long-term environmental damage, then the so-called "threshold" hypothesis, which seemed to have gained empirical support from all studies undertaken so far, fails to materialise. This suggests that, as far as factors related to the environment are concerned, the widening gap between ISEW and GPI on the one hand and gross national product (GNP) on the other, might be an artefact of highly contestable methodological assumptions.

Keywords: index, welfare, sustainability, resources, environmental damage, inequality