Most composite indicators of national performance limit their scope to only economic performance criteria and aggregate primitive performance data using subjective fixed weight values applied uniformly to all countries. This paper proposes a weighting method to correct for biases inherent in the use of fixed and uniform weights, and it presents a composite performance indicator that encompasses both economic and non‐economic performance criteria.
The paper presents a method that endogenously determines country‐specific weights that explicitly take account of a country's own choices and achievements across primitive dimensions of performance. The method is then used to construct a composite inclusive index that combines economic performance with two other performance dimensions: environmental sustainability and governance.
Comparison of the endogenous weight method with the method of using fixed and uniform weights indicates a bias in the latter that penalizes countries, in terms of indicating lower relative performance, which are more diverse in their achievements among primitive performance dimensions. When the endogenous weight method is used, the performance ranking of countries is altered such that countries with greater diversity improve their relative performance while the relative performance of countries having less diversity may either rise or fall.
The weighting method discussed in this paper: is applicable at any level of analysis (e.g. nations, companies, business units, etc.), obviates objections about the “importance” of alternative primitive dimensions that can arise when subjective fixed weights are used; and indicates more accurately relative performance since each unit of analysis is first allowed to obtain its best performance before relative performance is assessed. The method can therefore assist policy makers, companies, etc. to more accurately benchmark performance and it can, in particular, assist companies to respond to perceptions of low performance or compliance among different performance dimensions when performance has been determined using the traditional method of fixed and uniform weights.
