The new, book-length edition of Freedom in the 50 States: Index of Personal and Economic Freedom will be released on March 28 by the Mercatus Center at George Mason University. In the days leading up to release, I will be “teasing” a few of the novel findings and methods from the study. Here at Pileus, I’ve already posted a couple of teasers over the past few months, linked here:
This post will explain the logic and method behind the weighting scheme in the new edition. Every index of freedom has to use some way of weighting its variables to come up with an aggregate measure of freedom. The Heritage Foundation’s “Index of Economic Freedom” and Fraser Institute’s “Economic Freedom of the World” and “Economic Freedom of North America” essentially weight each variable equally, either within categories that are themselves weighted equally in the overall index (Fraser) or across the index as a whole (Heritage). The most commonly used international indices of democracy, Polity IV and Freedom House, and the first two editions of Freedom in the 50 States use “arbitrary” weights, that is, the researchers weight the categories according to their own judgment using general criteria.
We were unsatisfied with all of these approaches, as well as with inductive statistical alternatives known as “principal component analysis” and “factor analysis.” Here is how we put the case in the book:
Because we want to score states on composite indices of freedom, we need some way of “weighting” and aggregating individual policies. One popular method for aggregating policies is “factor” or “principal component” analysis, which weights variables according to how much they contribute to the common variance—that is, how well they correlate with other variables.
Factor analysis is equivalent to letting politicians weight the variables, because correlations among variables across states will reflect the ways that lawmakers systematically prioritize certain policies. Of course, partisan politics is not always consistent with freedom (e.g., states strong on gun rights tend to be weak on gay rights). The index resulting from factor analysis would be an index of “policy ideology,” not freedom.
Another approach, employed in the Fraser Institute’s “Economic Freedom of North America,” is to weight each category equally, and then to weight variables within each category equally. Of course, this approach assumes that the variance observed within each category and each variable is equally important. In the large dataset used for the freedom index, such an assumption would be wildly implausible. We feel confident that, for instance, tax burden should be weighted more heavily than court decisions mandating that private malls or universities allow political speech.
Previous versions of this index used a subjective weighting system, based on a rough assessment of the importance of each policy in terms of the number of people affected and the value they were likely to place on their infringed freedom. We were dissatisfied with the imprecise and subjective manner in which we constructed those weights, and for this edition we have tried to use a much more objective and independent measure of the “value” of each freedom.
The new, “objective” method of weighting variables is what we call the “freedom value” approach. Here is how we describe it: (more…)