WELFARE ECONOMICS

Kaldor–Hicks Improvement

Grow the pie, even if slices change

What it means

A change is a potential Kaldor–Hicks improvement when the people who gain receive enough benefit that they could compensate those who lose and still remain better off. The compensation does not have to occur, which is why the framework can identify added total value while leaving serious distributional questions unresolved.

Typical uses

Infrastructure, regulation, trade, land use, public spending, and policies that create both winners and losers.

ORIGIN

Where the idea came from

Creator or lineage: Nicholas Kaldor and John R. Hicks
Country: United Kingdom (Kaldor was Hungarian-born)
Years: Kaldor: 1908–1986; Hicks: 1904–1989
Development: Both published the compensation principle in 1939.
Catchphrase: “Grow the pie, even if slices change”

A change may add total value when gains could cover losses—even if compensation never occurs.

Read the source: Hicks’s original 1939 paper

QUESTIONS TO ASK

Do the total gains credibly exceed the total losses?
Who gains and who loses?
Will compensation actually occur—or remain hypothetical?

You do not need to know this concept’s name to use its reasoning. The name simply helps you recognize, examine, and discuss the pattern.

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