Question

The Kaldor-Hicks compensation criterion for evaluating a policy change is considered an improvement over the Pareto criterion primarily because:

Q: Answer-The Kaldor-Hicks compensation criterion for evaluating a policy change is considered an improvement...

The Pareto criterion requires no one to be made worse off highly restrictive for real policy. Kaldor-Hicks potential Pareto improvement a policy is an improvement if gainers could hypothetically compensate losers and still be better off. Actual payment is NOT required. This allows real-world policy evaluation at the cost of ignoring distributional consequences. Why others are wrong A Kaldor-Hicks requires only potential, not actual, compensation. C Describes the Scitovsky double criterion, which corrects the Kaldor-Hicks paradox, not resolves it. D Equal-weighted SWF is a separate utilitarian concept.

A It requires actual compensation to be paid, making it more equitable than the Pareto criterion

B It allows welfare comparisons across policies where some agents gain and others lose, which the Pareto criterion cannot handle, at the cost of ignoring distribution

C It resolves the Scitovsky paradox by requiring both the winners and losers to pass the compensation test simultaneously

D It is equivalent to maximising a Bergson-Samuelson social welfare function with equal weights

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