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
Date Written: 2001
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: Suggested Citation