Kaldor-Hicks Efficiency and the Problem of Central Planning

Quarterly Journal of Austrian Economics, Vol. 4, No. 2, pp. 41-50

10 Pages Posted: 19 Sep 2010

See all articles by Edward Peter Stringham

Edward Peter Stringham

Trinity College; American Institute for Economic Research

Date Written: 2001

Abstract

Supporters of Kaldor-Hicks believe it useful to have a quantitative measure to assess the efficiency of different situations. Although it may appear convenient to be able to judge policies using such an efficiency standard, the article argues that no such measures can be constructed. To implement Kaldor-Hicks - efficient policies, government would require wisdom beyond its grasp. Prices only provide evidence of past willingness to pay and cannot be used for formulating future policies. To truly figure out willingness to pay, the government would need to read minds to determine how much every single person would value every possible state of the world, a feat that can never be attained. Article concludes that Kaldor-Hicks should be rejected as a means of judging policy.

Suggested Citation

Stringham, Edward Peter, Kaldor-Hicks Efficiency and the Problem of Central Planning (2001). Quarterly Journal of Austrian Economics, Vol. 4, No. 2, pp. 41-50, Available at SSRN: https://ssrn.com/abstract=1676256

Edward Peter Stringham (Contact Author)

Trinity College ( email )

Hartford, CT 06106
United States

American Institute for Economic Research ( email )

PO Box 1000
Great Barrington, MA 01230
United States

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