Alternative versions of the global competitive industrial performance ranking constructed by methods from social choice theory

📝 Abstract

The Competitive Industrial Performance index (developed by experts of the UNIDO) is designed as a measure of national competitiveness. Index is an aggregate of eight observable variables, representing different dimensions of competitive industrial performance.

💡 Analysis

The Competitive Industrial Performance index (developed by experts of the UNIDO) is designed as a measure of national competitiveness. Index is an aggregate of eight observable variables, representing different dimensions of competitive industrial performance.

📄 Content

Andrey Subochev, Igor Zakhlebin
ALTERNATIVE VERSIONS OF THE GLOBAL COMPETITIVE INDUSTRIAL PERFORMANCE RANKING CONSTRUCTED BY METHODS FROM SOCIAL CHOICE THEORY
Working Paper WP7/2014/06
Series WP7 Mathematical methods for decision making in economics, business and politics

Moscow State University - Higher School of Economics 2009

3 Editors of the Series WP7 “Mathematical methods for decision making in economics, business and politics”
Aleskerov Fuad, Mirkin Boris, Podinovskiy Vladislav

Subochev, A., Zakhlebin, I.
Alternative versions of the global competitive industrial performance ranking constructed by methods from social choice theory : Working paper WP7/2014/06 [Тext] / A. Subochev , I. Zakhlebin ; National Research University “Higher School of Economics”. – Moscow : Higher School of Economics Publ. House, 2014. – 32 p. – 10 copies.

Abstract The Competitive Industrial Performance index (developed by experts of the UNIDO) is designed as a measure of national competitiveness. Index is an aggregate of eight observable variables, representing different dimensions of competitive industrial performance. Instead of using a cardinal aggregation function, what CIP’s authors do, it is proposed to apply ordinal ranking methods borrowed from social choice: either direct ranking methods based on majority rule (e.g. the Copeland rule, the Markovian method) or a multistage procedure of selection and exclusion of the best alternatives, as determined by a majority rule-based social choice solution concept (tournament solution), such as the uncovered set and the minimal externally stable set. The same method of binary comparisons based on majority rule is used to analyse rank correlations. It is demonstrated that the ranking is robust but some of the new aggregate rankings represent the set of criteria better than the original ranking based on the CIP.

This study comprises research fi ndings from the “Constructing Rankings by Social Choice methods” project (grant № 12-05-0036, years 2012–2013) carried out as a part of The National Research University Higher School of Economics’ Academic Fund Program. The work was partially financed by the International Laboratory of Decision Choice and Analysis (DeCAn Lab) as a part of projects 32.0 (2010), 53.0 (2011) and 93.0 (2013) within the Program for Fundamental Research of the National Research University Higher School of Economics. We are grateful to professor F. Aleskerov for his helpful suggestions and careful review of the manuscript.

Andrey Subochev, DeCAn Lab and Department of Mathematics for Economics, National Research University Higher School of Economics, Moscow, asubochev@hse.ru
Igor Zakhlebin, National Research University Higher School of Economics, Moscow, zahl.igor@gmail.com

4 1 Introduction National competitiveness is broadly defined as an ability of a national economy to produce goods and services that meet the requirements set by international competition, while citizens enjoy a standard of living that is both improving and sustainable [Tyson, 1992]. Although no general consensus on how to determine national competitiveness has been reached, it is agreed that this is not a self-contained notion. In order to measure it one has to define a set of factors such that their values either determine the level of national competitiveness or are determined by it. Once this set of factors has been defined, the measurement of national competitiveness becomes a problem of multiple criteria aggregation. This paper deals with Competitive Industrial Performance Index (CIP), presented in UNIDO’s Competitive Industrial Performance Report 2012/2013. The CIP Index is based on eight factors grouped into three sets called dimensions. Index value is a product of six values: two arithmetic means of two pairs of factors, which form the second dimension, and values of the other four factors. In this paper we do not question either definition of competitiveness, proposed by authors of the report, nor their choice of its observable correlates. We are interested in how the aggregation is performed. The method of aggregation adopted by the authors of the CIP is theoretically problematic. Since the aggregation formula itself and the values of weights (factors for summations and powers for multiplication) are not unique, their choice have to be justified. It is extremely difficult if not altogether impossible to justify one’s choices when the resulting variable is not directly observable and measurable. We have no such justification for the problem under consideration, therefore we cannot be sure that calculation of the CIP index presented in the report is a correct aggregation procedure yielding meaningful results. A cardinal value of this index will not tell us anything about performance of a given country if we do not compare it with other countries’ values. The differences or propo

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