Inequality, Interactions, and Human Development

The Human Development Index, which is multidimensional by construction, is criticized on the ground that it is insensitive to any form of inequality across persons. Inequality in the multidimensional context can take two distinct forms. The first pertains to the spread of the distribution across persons, analogous to unidimensional inequality. The second, in contrast, deals with interactions among dimensions. The second form of inequality is important as dimensional interactions may alter individual level evaluations as well as overall inequality. Recently proposed indices have incorporated only the first form of inequality, but not the second. It is an important omission. This paper proposes a two-parameter class of Human Development Indices that reflects sensitivity to both forms of inequality. It is revealed how consideration of interactions among dimensions affects policy recommendations. Finally, the indices are applied to the year 2000 Mexican census data to contrast the present approach with the existing approaches.