In defense of the Kaldor-Hicks criterion

Toshihiko Mukoyama

Economics Letters, 2023, vol. 224, issue C

Abstract: This paper argues the Kaldor-Hicks criterion can be a sensible criterion for judging the policy benefit in a dynamic economy if the agents can trade state-contingent securities regarding a future policy change. When the probability of the policy change is very small, ex-ante security trades can increase everyone’s consumption after the policy implementation when the Kaldor-Hicks criterion is met, even without an ex-post redistribution by the government.

Keywords: Kaldor-Hicks criterion; Cost–benefit analysis; Heterogeneous-agent macroeconomics; Redistribution (search for similar items in EconPapers)
JEL-codes: D61 E60 H23 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:224:y:2023:i:c:s0165176523000563

DOI: 10.1016/j.econlet.2023.111031

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