Constructing composite indicators with imprecise data: A proposal

This paper focuses on the construction of a composite indicator for the knowledge based economy, using imprecise data. Specifically, for some indicators we only have information on the interval within which the true value is believed to lie. The proposed approach is based on the Data Envelopment Analysis literature. Given the setting of evaluating countries, this paper discerns a ‘strong country in weak environment’ and ‘weak country in strong environment’ scenario resulting in respectively an upper and lower bound on countries’ performance. Accordingly, we derive a classification of ‘benchmark countries’, ‘potential benchmark countries’, and ‘countries open to improvement’. We illustrate our method with data on the knowledge economy.

► We calculate a composite indicator for the knowledge economy.
► Some raw data are not exactly known.
► Our method is based on benefit-of-the-doubt weighting.
► We classify countries as “benchmarks”, “potential benchmarks”, and “open to improvement”.