Answer to Question #241776 in Microeconomics for Mehak

Question

What is kaldor compensation principle.

How it is uesd to resolve pareto non comparability?

How ot os different from hick's compensation principle?

Answer 1

What is Kaldor compensation principle?

If a certain change in economic organization or policy, according to Kaldor, makes some people better off and the others worse off, there will be a net increase in social welfare, when the gainers in welfare compensate the losers and are still better off than before.

How it is uesd to resolve pareto non comparability?

One way to resolve this non-comparability problem is to define a social welfare function, W(U1, U2), whose arguments are the utility levels of all individuals in the economy.

What is the difference between the Pareto principle and the Kaldor Hicks principle?

In economic theory, an alteration in the allocation of resources is said to be Kaldor-Hicks efficient when it produces more benefits than costs. A Pareto efficiency arises when at least one person is made better off and no one is made worse off.