Kaldor-Hicks Criterion

{
  "id": "MLC-T-ENV-015119",
  "term": "Kaldor-Hicks Criterion",
  "field": "Environment",
  "definition": "1. A criterion of equity which states that one social state is better than another if there is a net gain in efficiency and if those that gain can compensate the losers.\n\n2. A combination of two criteria: the Kaldor criterion and the Hicks criterion. The Kaldor criterion states that an activity will contribute to Pareto optimality if the maximum amount the gainers are hypothetically prepared to pay is greater than the minimum amount that the losers are hypothetically prepared to accept. Under the Hicks criterion, an activity will contribute to Pareto optimality if the maximum amount the losers are hypothetically prepared to offer to the gainers in order to prevent the change is less than the minimum amount the gainers are hypothetically prepared to accept as a bribe to forgo the change. In other words, the Hicks compensation test is conducted from the losers’ point of view, while the Kaldor compensation test is conducted from the gainers’ point of view. The Kaldor-Hicks criterion is widely applied in welfare economics and managerial economics. It forms an underlying rationale for BCA.",
  "subject": "General environmental",
  "references": [
    "Program Evaluation Glossary",
    "Economic Analyses Glossary; Preparing Economic Analyses Glossary"
  ],
  "url": "https://mlchart.com/terminology/environment/kaldor-hicks-criterion/"
}