Rankings can drive big improvements in performance. They can also generate disagreements and gaming. Understanding the nuances of ranking systems is key to using them effectively.
Used effectively, rankings harness competitive forces to incentivise higher performance
The World Bank’s ‘Doing Business’ ranks nearly all countries annually on ten 'ease of doing business' areas. In part, the ranking seeks to harness competitive forces by “encouraging economies to compete towards efficient regulation”. For example, China’s recent 32-place increase on the ranking was supposedly heavily influenced by India’s 30-place increase the year prior. Both nations achieved these increases by reforming parts of their business environment.
The ten 'Ease of Doing Business' areas
However, rankings can also be prone to unintended consequences
The Doing Business ranking has some limitations. For example, it only uses data collected from the country's largest city (sub-national indicators are beginning to be incorporated for some countries). Additionally, the ranking captures data mostly related to limited liability companies, excluding all other types of common business structures. These types of methodological limitations can lead to disagreements about whether the ranking accurately depicts reality. For example, disagreements over the ranking’s methodological robustness arose as a result of Chile’s ranking wildly fluctuating scores between 2006 and 2017.
Limitations in ranking design can also lead to gaming. For example, the India edition of the Huffington Post recently suggested that India’s rapid increase on the Doing Business ranking was the result of “cracking the code” rather than substantive economic reforms.
Careful design may reduce disagreements and gaming
There are many ways to develop rankings, each with their own nuanced advantages and limitations (outlined below). Understanding these nuances can help ensure that rankings are used effectively.