Economics

A policy can be 'efficient' even if it makes some people worse off

The Kaldor-Hicks criterion says a change is worth making if the winners could, in principle, compensate the losers and still come out ahead — even if that compensation never actually happens. It was devised in 1939 by Nicholas Kaldor and John Hicks to rescue welfare economics from a stricter rule requiring nobody be harmed at all. Most cost-benefit analysis used in government policy today runs on this looser standard.

Nicholas Kaldor, Welfare Propositions in Economics and Interpersonal Comparisons of Utility — The Economic Journal, 1939

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