Kaldor–Hicks efficiency
Kaldor–Hicks efficiency is an economic concept that assesses whether a policy or decision improves overall welfare, even if some individuals are worse off. It suggests that a change is considered efficient if those who benefit could, in theory, compensate those who lose out, ensuring that the overall gains outweigh the losses. This idea acknowledges that not everyone needs to be better off for a decision to be justified, as long as the total benefits exceed the total costs, promoting resource allocation that maximizes societal wealth.
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Kaldor-Hicks efficiency is an economic concept used to evaluate the overall benefits of an action or policy. It suggests that an outcome is efficient if those who gain from it could potentially compensate those who lose out, leading to a net benefit for society as a whole. In practical terms, if the total gains exceed the total losses, the situation is considered more efficient, even if not everyone is better off. This idea is often applied in cost-benefit analyses to assess the effectiveness of government projects and policies.