Hicks Optimality / Kaldor-Hicks Efficiency
Updated 2026-08-02
INTRODUCTION
English translation pending.
CORE DEFINITION
Developed by Nicholas Kaldor and John Hicks, the Kaldor-Hicks criterion judges a change efficient if the winners' gains exceed the losers' losses, so that compensation is possible in principle even if it is never paid. It is a weaker standard than a Pareto improvement, which requires that no one be made worse off. The criterion underlies modern cost-benefit analysis of regulation and public projects. Key qualification: because it permits uncompensated losses, it addresses total welfare rather than distributive justice.
SCAFFOLDING EFFECT
Reduce cognitive load
- Compare totals: evaluate whether aggregate gains exceed aggregate losses before judging a change. - Ask about compensation: check whether winners could compensate losers and still come out ahead. - Separate the questions: distinguish whether compensation is possible from whether it will actually be paid.
Anchor fast decisions
Because almost every real change creates both winners and losers, requiring that nobody be harmed would block nearly all reform. Comparing the size of the gains with the size of the losses gives a workable test of whether the change increases total welfare. The criterion deliberately leaves the distribution question open, which is what makes it useful for cost-benefit analysis and vulnerable to ignoring fairness.
MINIMUM ACTION
In progress 0/1Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Kaldor%E2%80%93Hicks_efficiencyverified
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