A Review Article: The Case against the Use of the Sum of Compensating Variations in Cost-Benefit Analysis

Charles Blackorby and David Donaldson

Canadian Journal of Economics, 1990, vol. 23, issue 3, 471-94

Abstract: This paper presents a case against the use of the sum of compensating variations as a cost-benefit test. The authors argue that (1) the ethical judgments implied by the test are not defensible; (2) positive sums of compensating variations occur without potential Pareto improvements, resulting in social preference reversals without simultaneous Scitovsky reversals; (3) when lump-sum transfers are feasible, a positive sum of compensating variations is necessary, but not sufficient, for a potential Pareto improvement; and (4) in order to eliminate preference reversals and intransitivities, all households must have almost identical quasi-homothetic preferences--a condition that is not satisfied in real economies.

Date: 1990
References: Add references at CitEc
Citations: View citations in EconPapers (64)

Downloads: (external link)
http://links.jstor.org/sici?sici=0008-4085%2819900 ... RATCA%3E2.0.CO%3B2-5 (text/html)
only available to JSTOR subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cje:issued:v:23:y:1990:i:3:p:471-94

Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php

Access Statistics for this article

Canadian Journal of Economics is currently edited by Zhiqi Chen

More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().