![]() to show that even if all those who suffer as a result are fully compensated for their loss, the rest of the community will still be better off than before.” where a certain policy leads to an increase in physical productivity and thus of aggregate real income… it is possible to make everybody better off without making anybody worse off. Thus, if any policy change benefits any one section of the society (gainers) to such an extent that it is better off even after the payment of compensation to the other sections of the society (losers) out of the benefits received, then that change leads to increase in social welfare. Baumol, “Kaldor’s criterion states that a change is an improvement if those who gain evaluate their gains at a higher figure than the value which the losers set upon their losses.” Kaldor’s criterion helps us to measure the welfare implications of a movement in either direction on the contract curve in terms of Edgeworth box diagram.Īccording to Kaldor’s welfare criterion, if a certain change in economic organisation or policy makes some people better off and others worse off, then a change will increase social welfare if those who gain from the change could compensate the losers and still be better off than before. Nicholas Kaldor was the first economist to give a welfare criterion based on compensating payments. These economists have sought to remove indeterminacy in the analysis of Pareto optimality. Kaldor-Hicks Welfare Criterion: Compensation Principle:Įconomists like Kaldor, Hicks and Scitovsky have made efforts to evaluate the changes in social welfare resulting from any economic reorganisation which harms somebody and benefits the others. Thus, the analysis of welfare in terms of Pareto optimality leaves a considerable amount of indeterminacy, for there are numerous Pareto optimum points on the contract curve. This criterion does not tell us about changes in the level of social welfare if one move on the contract curve from one tangency point to another because such movement harms one and benefits the other. ![]() There is thus no any unique optimum position. In terms of Edgeworth box diagram Pareto criterion fails to say as to whether or not social welfare increases as movement is made in either direction along the contract curve because it rejects the notion of interpersonal comparison of utility.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |