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Kaldor-Hicks Efficiency and the Problem of Central Planning

  • The Quarterly Journal of Austrian Economics

Tags Philosophy and MethodologyValue and Exchange

07/30/2014Edward Stringham
 

Volume 4, No. 2 (Summer 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, I will argue that no such measures can be constructed. Contrary to Caplan who states, “Rothbard’s own theory strips him of the ability to call any act of government inefficient,” I will argue that the neoclassical standard itself cannot be used to judge different states of the world. As Gerald O’Driscoll wrote, Kaldor-Hicks advocates such as Posner are “actually grappling with the calculation problem.” This article will follow up on this point and discuss whether Kaldor-Hicks-efficient policies can be calculated. There are a number of criticisms of the wealth-maximization standard on both positive and normative rounds. The focus here will be on the positive pitfalls of Kaldor-Hicks efficiency to argue that it is an unusable standard. 

 

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Contact Edward Stringham

Edward Stringham is Davis Professor of Economic Organizations and Innovation at Trinity College in Hartford, Connecticut. In 2017 he became president of American Institute for Economic Research in Great Barrington, Massachusetts. He received his undergraduate degree from College of the Holy Cross in 1997 and his doctorate from George Mason University in 2002. As a student, Stringham first attended Mises University in 1996.

Cite This Article

Stringham, Edward. "Kaldor-Hicks Efficiency and the Problem of Central Planning." The Quarterly Journal of Austrian Economics 4, No. 2 (Summer 2001): 41-50.

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