Any Normative Policy Analysis Not Based on Kaldor–Hicks Efficiency Violates Scholarly Transparency Norms
Law & Economics: Philosophical Issues and Fundamental Questions, Routledge, 183–202 (2015)
21 Pages Posted: 6 Sep 2016 Last revised: 19 Sep 2016
Date Written: January 12, 2015
A fundamental scholarly norm holds that those who make normative statements should reveal their normative framework. I argue that all those who reject Kaldor-Hicks as the fundamental framework violate this fundamental scholarly norm by being non-transparent in some way.
"Kaldor-Hicks efficiency" is a fancy term that essentially conveys two ideas. The first is that all possible advantages and disadvantages of a legal rule should be taken into account — we cannot act as if some do not exist. The second is that — to the extent that these (dis)advantages lead to conflicting recommendations — they should be balanced, which requires a common unit of measurement (such as "dollars," "utility," "welfare," or "happiness."). In other words, there should be a meta-rule for conflicting (dis)advantages, and this meta-rule should balance them rather than categorically rank-order them or deny the existence of some of them.
Those who reject Kaldor-Hicks efficiency either consider fewer types of (dis)advantages (categorically ignoring others), do not reveal their meta-rule for solving conflicts, or do not consistently apply their own criteria (by having a fixed-rank order of values which they do not consistently apply, which means that they are applying different criteria than they articulate).
This holds not only for scholars who defend fairness-based norms, but also for those who defend the Pareto criterion as the ultimate criterion — including those who justify Kaldor-Hicks as an application of the Pareto criterion. Indeed, while Kaldor-Hicks efficiency is often seen as a variant of Pareto efficiency, it is, at its core, a fundamentally different criterion. The Pareto criterion contains a meta-criterion according to which, in case of conflicting costs and benefits, categorical priority should be given to the status quo. Since no scholar has ever consistently defended this extreme position, those who still defend the Pareto criterion are, in practice, non-transparent with respect to the criteria they really apply. Relatedly, I show that frequently made assumptions in Pareto analyses can only be justified on the basis of Kaldor-Hicks.
Keywords: Fairness, welfare, utilitarianism, Pareto efficiency, Kaldor-Hicks, transparency
JEL Classification: K00
Suggested Citation: Suggested Citation