The Axioms Explained

KH An Adjusted Kaldor-Hicks Measure By the KHZ tests, I mean a set of tests in which a project is evaluated by willingness to pay (WTP) measures for gains and by willingness to accept (WTA) measures for losses. I will show that these are not equal to the sum of either the compensating CVs or the compensating EVs but rather to some combination of them. Unlike the CV or EV measures alone, I will show further that these measures satisfy a Kaldor compensation test. By building on the KH measures we...

The Separation Of Efficiency And Distribution

The approach adopted by Kaldor, and then by Hicks, attempted to separate economic efficiency from issues of the distribution of income. It was generally thought that by separating distributional considerations from aggregate gains a value-free measure would be obtained (Kaldor 1939 Hicks 1939 Chipman and Moore 1978, p. 578).17 The change in aggregate gains was to be the measure of efficiency, so that there was a separation of effects into those of efficiency and distribution. The eagerness of...

Criteria For A New Measure Of Efficiency

Sen (1995, p. 11) notes that it is difficult to agree upon a rule for measuring social welfare because of the disparate considerations that pull us in different directions when we attempt to evaluate policies or welfare procedures. The goal I set for myself here is ambitious it is to suggest a set of principles and accompanying procedures which will provide an ethical basis for benefit-cost analysis.1 The failure of 'the New Welfare Economics noted in Chapter 1 was guaranteed, as its objective...

Criticisms Of Kaldorhicks

Many critics of benefit-cost analysis have said that it ignores issues of income distribution and actual compensation, so that it approves a project that hurts those who should be helped, and benefits those who do not need it Fried 1978 . The critics say that normative economic analysis is missing values such as personal integrity, so that it condemns a person who uses resources to keep a promise to a dead friend when the friend can no longer benefit from the kept promise, resulting in a waste...