Economics · Welfare Economics
In welfare economics, the 'Compensation Principle' as operationalised by Kaldor-Hicks differs from the Pareto criterion in that:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Kaldor-Hicks does not require actual compensation, only potential compensation feasibility✓
- 2Kaldor-Hicks requires strict Pareto improvement before a policy can be recommended
- 3Kaldor-Hicks considers only the utility of the gainers, ignoring income distribution
- 4The Pareto criterion allows for potential compensation while Kaldor-Hicks requires actual payment
Correct answer
Kaldor-Hicks does not require actual compensation, only potential compensation feasibility
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