The New Welfare Economics
The new welfare economics
of Hicks, Kaldor and Scitovsky abandoned the old welfare
economics
of Marshall, Pigou and Lerner by giving up on interpersonal utility comparisons.
This left only the Pareto principle, which is silent on tradeoffs across people. Since few policy
choices are Pareto improvements, Kaldor (1939) and Hicks (1939) proposed an extension of the
Pareto principle through compensation tests:
- Kaldor: Can the gainers compensate the losers ex post?
- Hicks: Can the losers compensate the gainers ex ante for keeping the status quo?
These don't work. See Chipman and Moore (1978).
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