6: SUMMARY INDEX Other Information:
Construction of Area and Summary ratings -- Theory provides us with some direction regarding elements that should be included
in the five areas and the summary index, but it does not indicate what weights should be attached to the components within
the areas or among the areas in the construction of the summary index. It would be nice if these factors were independent
of each other and a weight could be attached to each of them. In the past, we investigated several methods of weighting the
various components, including principle component analysis and a survey of economists. We have also invited others to use
their own weighting structure if they believe that it is preferable. Our experience indicates that the summary index is not
very sensitive to alternative weighting methods. Furthermore, there is reason to question whether the areas (and components)
are independent or work together like the wheels, motor, transmission, driveshaft, and frame of a car. Just as it is these
interconnected parts that provide the mobility of an automobile, it may be the combination of interrelated factors that brings
about economic freedom. Which is more important for the mobility of an automobile: the motor, wheels, or transmission? The
question cannot be easily answered because the parts work together. If any of these key parts break down, the car is immobile.
Institutional quality may be much the same. If any of the key parts are absent, the overall effectiveness is undermined. As
the result of these two considerations, we organize the elements of the index in a manner that seems sensible to us but we
make no attempt to weight the components in any special way when deriving either area or summary ratings. Of course, the component
and sub-component data are available to researchers who would like to consider alternative weighting schemes and we encourage
them to do so.
Objective(s):
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