Index of Sustainable Economic Welfare

The Index of Sustainable Economic Welfare is an economic indicator intended to replace the gross domestic product. Rather than simply adding together all expenditures like the gross domestic product, consumer expenditure is balanced by such factors as income distribution and cost associated with pollution and other economically unsustaining costs. It is similar to the Genuine Progress Indicator.

Index of Sustainable Economic Welfare (ISEW) is roughly defined by the following formula.

ISEW = personal consumption
+ non-defensive public expenditures
- defensive private expenditures
+ capital formation
+ services from domestic labour
- costs of environmental degradation
- depreciation of natural capital


The index is based on the ideas presented by William Nordhaus and James Tobin in their Measure of Economic Welfare. It was first coined in 1989 by Herman Daly and John B. Cobb. They later went on to add several other "costs" to the definition of ISEW. This later work formed the Genuine Progress Indicator.


  • Nordhaus, W. and J. Tobin, 1972. Is growth obsolete?. Columbia University Press, New York.
  • Daly,H. & Cobb, J., 1989. For the Common Good. Beacon Press, Boston.
  • H. Diefenbacher "The Index of Sustainable Economic Welfare in Germany", in C. Cobb & J. Cobb (eds.), The Green National Product, University of Americas Press, 1994.
  • Clive Hamilton "The Genuine Progress Indicator: methodological developments and results form Australia", Ecological Economics, vol. 30, pp.13-28 1999.
  • T. Jackson, N. Marks, J. Ralls & S. Strymne: "An index of sustainable economic welfare for the UK 1950-1996", Centre for Environmental Strategy, University of Surrey, Guildford, 1997.
  • T. Jackson & N. Marks: "Measuring Progress", new economics foundation and Friends of the Earth, London, 2002.
  • T. Jackson, N. McBride, N. Marks & S. Abdallah: "Measuring Regional Progress: Developing a Regional Index of Sustainable Economic Well-being for the English Regions", new economics foundation, London, 2006-7.

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