Capability Sets as the Basis of a New Measure of Human Development

Human development is about much more than growth in real income. It is about expanding the choices human beings have to lead lives that they value. The potential choices and their expansion can be captured by capability sets that consist of various functioning vectors. The standard of living is then reflected in these capability sets. This paper proposes a particular way of measuring the standard of living available either to an individual or household or to a whole nation, when the direction of the development of society represented by a reference functioning vector is uncertain. The basis for our theoretical analysis is Lancaster's characteristics approach to consumer theory, which is combined with Sen's concept of functionings. We provide an axiomatic characterization of the measure that we propose.