Keywords: cost-benefit analysis, gross-domestic product, GDP, human development, life expectancy, life quality index, risk analysis, risk assessment, risk management, social indicators, utility theory, welfare economics, engineering projects
Foundational principles of welfare economics underlying the life quality index for efficient risk management
The paper provides the philosophical foundation and clarifies the methodological assumptions that form the basis of the Life Quality Index (LQI) as an innovation to promote efficient risk management practices. The basic premise is that enhancement of life safety is a fundamental human value. The LQI draws into account key social indicators as identified in the UN Human Development Reports with significant emphasis on income and life expectancy. The paper shows that the LQI model is in harmony with well-established principles of welfare economics as highlighted in the literature on economics and human development. Furthermore, the derivation of the LQI is shown to be consistent with the key operational requirements of utility theory and econometric modelling. The LQI has potential to be an effective and versatile tool to support social and economic cost-benefit analysis of engineering projects that have consequential impacts on individual welfare and the quality of life.