Kaldor-Hicks Research Articles

Harmonizing fiscal policy: Indirect taxes and global public goods

AbstractThis article focuses on the welfare effects of the interaction of a rule of indirect tax harmonization under the destination principle and the provision of public goods that are global in nature. It stresses the role of international transfers between governments set in order to equalize the social (i.e., worldwide) marginal cost of public funds across countries. Under this condition, it is shown how the combination of the tax and expenditure side of such a “harmonizing fiscal policy” can give rise to a potential Pareto improvement. This requires considering aggregate revenue effects (and the ensuing effects on the provision of public goods) of the fiscal reform jointly with under/over provision of public goods in the (first‐best) Samuelson sense.

An Economic Analysis of Iran’s 2017 Judicial System Reforms: Ways with Long-term Effects to Improve Judicial System’s Litigation Delay

Litigation delay is a serious concern for judicial systems. In 2017, Iran enacted regulations for digitizing the judicial system in order to address this problem. This article shows whether this new policy has been an efficient move and shows solutions with more long-term results for overcoming the litigation delay. To analyze the recent reforms' efficiency, I review Iran's dispute resolution performance using secondary data from Doing Business research and the Research Center of the Iranian parliament reports in measuring the doing business environmentfrom 2016, before adopting those regulations, and then until 2019. Finally, it is concluded that Law & Economics methodology is a suitable methodology for analyzing the efficiency of 2017 Iran’s policy, which also provides ways to achieve more sustainable results to overcome the litigation delay. The main finding of this study is that according to the Kaldor-Hicks efficiency, Iran's recent reforms related to digitizing the judicial system have been an efficient move; however, due to the nature of these reforms, this efficiency does not last permanently.

In defense of the Kaldor-Hicks criterion

In defense of the Kaldor-Hicks criterion

Efficiently Unequal: The Global Rise of Kaldor-Hicks Neoliberalism

ABSTRACT This paper offers a history of the ‘Kaldor-Hicks’ concept of economic efficiency from its European birth in the 1930s to its American resurgence in the 1970s to its widespread implementation in the Global South by the early twenty-first century. While philosophers, economists and legal theorists have written widely about Kaldor-Hicks – global-minded intellectual historians have not. As a result, scholars have yet to place its creation, dissemination and ascendency into a broader historical context or examine the reasons behind its global spread. As this paper will demonstrate through the rise of cost–benefit analyses based on ‘willingness to pay’ metrics, while Kaldor-Hicks efficiency was invented by neoclassical economists in the late 1930s, its ascent to policy dominance is part-and-parcel of the neoliberal revolution of the past half century. Linking the history of economic thought with the rise of global neoliberalism, this paper demonstrates how Kaldor-Hicks efficiency emerged as a central pillar of a new, interventionist, wealth-maximizing and market-based form of depoliticized technocratic governance that not only marginalizes distributive concerns but actively exacerbates the problem of global inequality.

In Defense of the Kaldor-Hicks Criterion

In Defense of the Kaldor-Hicks Criterion

Urban consolidation centers: Impact analysis by stakeholder

An Urban Consolidation Center is a city logistics solution that contributes to reducing the negative effects of transportation activities in urban areas, but few projects have been implemented fully and financial sustainability is commonly mentioned as a constraint to their implementation. The objective of this research is two-fold: to present a methodology to include socio-environmental impact monetization in the economic evaluation of urban consolidation center projects and to discuss the result of UCC project economic evaluations considering foundations of Welfare Economics. For this purpose, the impacts for each stakeholder were identified, their monetization was incorporated in the analysis and the results were discussed in light of the Kaldor-Hicks criterion. Two Brazilian cases are used to apply the proposed methodology. The results show that when socio-environmental impacts, such as a reduction in traffic congestion and pollution emissions, are incorporated into the economic evaluation, implementation is justified for cities with high levels of traffic congestion. This study might improve the future analysis of urban consolidation center projects by performing a more comprehensive economic evaluation. Notably, it includes social, environmental and monetary benefits for different stakeholders, and is relevant for practitioners and public administrators.

The Benefits and Costs of Automotive Regulations for Low-Income Americans

AbstractBenefit-cost analyses of regulations address Kaldor-Hicks efficiency but rarely investigate the distribution of benefits and costs as experienced by low-income households. In order to fill this gap, this article assembles the available evidence to determine how regulations of the automobile industry may impact the well-being of low-income Americans. The scope of the investigation includes air pollution, safety and fuel-economy regulations. We find that performing benefit-cost analyses for low-income households is more challenging than commonly understood. Given the difficulties in completing distributional analysis with available information, the authors offer practical suggestions on how to change the federal data systems and the rulemaking process to ensure that information is collected about how future automobile regulations impact the well-being of the poor.

Bem-Estar Social e o Conceito de Eficiência

Desde a Constituição Federal (art. 37) até o Código de Processo Civil (art. 8º) há dezenas de diplomas legais comandando a busca pela eficiência, mas não existe uma definição jurídica do que seja eficiência. O presente artigo demonstra como os conceitos econômicos de eficiência produtiva, alocativa e dinâmica podem ser utilizados para dar conteúdo aos referidos comandos jurídicos. Os critérios de Pareto e de Kaldor-Hicks são apresentados como mecanismos de aferição de eficiência e a Análise Custo-Benefício e a Análise de Impacto Regulatório são meras aplicações dos referidos critérios. Por fim, demonstra-se como os conceitos tradicionais de eficácia, eficiência e efetividade da Administração podem ser integrados nesse arcabouço teórico, em uma abordagem sistemática e coerente.

AS VANTAGENS ECONÔMICAS E A MINIMIZAÇÃO DOS CUSTOS DE RESPONSABILIDADE E DE TRANSAÇÃO NA IMPLANTAÇÃO DE POLÍTICAS DE COMPLIANCE NAS EMPRESAS

Pretende-se, por intermédio deste estudo, analisar e avaliar as vantagens econômicas e a diminuição dos custos de transação na aplicação de políticas de compliance nas pessoas jurídicas de direito privado. A principal forma de análise será aquela proposta por Ronald Coase em seus artigos The Problem of Social Cost e The Nature of the Firm, entre outros consagrados autores da Escola de Chicago. Sinalar-se-ão as finalidades e os meios para a implantação dessa política nas empresas, bem como o lucro e o custo advindos dessa aplicação. Afinal, a aplicação das diretrizes formuladas pela Lei Anticorrupção Empresarial, sancionada pelo governo brasileiro, em 2013, por exemplo, é um incentivador de criação de políticas internas para que a firma, como um todo, aja de forma ética e além dos ditames da lei. Será proposta, também, a importância do compliance officer como um setor consultivo e que trará lucro às empresas se comparado com a litigiosidade dos eventuais processos judiciais aos quais as companhias podem sofrer. Conclui-se, com base em prescrições da AED, como o ótimo Kaldor-Hicks e a Fórmula de Hand, que os custos despendidos em compliance possuem um retorno marginal maior do que o custo.

Beneficiaries of free admission to scenic areas: A cost-benefit analysis of scenic areas for public welfare from the perspective of stakeholders

Based on stakeholder theory and using the Kaldor-Hicks Tableau for cost-benefit analysis, this study investigates the effects on social welfare of the free-of-charge policy in tourist areas and the implications for various stakeholders through an examination of the Shanghai Sheshan National Forest Park. The results show that the park has become significantly more effective than before, and the policy is compatible with Kaldor-Hicks efficiency. Local residents, tourists, and the catering and retail businesses in and around the park have been the main beneficiaries, while local authorities and state-owned enterprises have borne most of the costs. The original cost-benefit scenario has been disrupted. Key policy implications for managerial practice and contributions to scholarly knowledge are discussed.

The Kaldor–Hicks Criterion Applied to Economic Evaluation of Urban Consolidation Centers

Urban Consolidation Centers (UCC) cases, like in Tenjin, Japan, or in Lucca, Italy, have shown vehicle optimization and a decrease in environmental and social impacts of freight transportation activities. Nonetheless, financial sustainability is a barrier for their operation, especially because it is not common to consider environmental and social impacts in cost–benefit analysis. There is a lack of literature about the economic evaluation of UCC addressing stakeholder’s cost–benefit with reduction of externalities. The objective of this paper is to present an example of how to incorporate social and environmental impact in a UCC economic evaluation and according to the Kaldor–Hicks criterion, to demonstrate that UCC implementations might be justified even when public subsidies are necessary. A neighborhood of São Paulo city, Brazil, was used as a reference for a simulated UCC implementation. The simulated direct costs of the UCC operations were 13.7% higher than the baseline scenario, however, using the Kaldor–Hicks criterion and incorporating benefits for stakeholders, the benefits compensate the additional operating cost. This new approach to UCC economic evaluation that monetizes and incorporates environmental and social benefits for stakeholders might support decision-makers to optimize freight transportation systems while reducing negative effects of this activity.

Optimal Redistributive Wealth Taxation When Wealth is More than Just Capital

We show how normative standpoints determine optimal taxation of wealth. Since wealth is not equal to capital, we find very different welfare implications of land rent-, bequest- and capital taxation. It is mainly land rents that should be taxed. We develop an overlapping generations model with heterogeneous agents and calibrate it to OECD data. We compare three normative views. First, the Kaldor-Hicks criterion favors the laissez-faire equilibrium. Second, with prioritarian welfare functions based on money-metric utility, high land rent taxes are optimal due to a portfolio effect. Third, if society disapproves of bequeathing, bequest taxation becomes slightly more desirable.

Efficiency and Conservativism.

The concept of plays a central role in law and economics. Yet despite its centrality, some basic questions about the nature of this efficiency idea remain obscure. The argument of this article can be briefly stated. In Section I, it is argued that we need an efficiency norm to capture the fundamental idea of avoiding waste, or a sacrifice of one good thing that is not a necessary loss in the pursuit of another good thing. An anti-waste ideal is made important more by a plurality of plausible conceptions of distributive justice than by worries about the impracticability of interpersonal utility comparisons. Section II argues that efficiency can indeed be a pragmatically useful norm, if one expands the traditional Pareto criterion of efficiency not in the direction of Kaldor-Hicks efficiency but in the direction of ex ante efficiency. Adopting the rules that the parties rationally would have imposed upon themselves had transaction costs been lower is a procedure that is consonant with a broad array of reasonable views on distributive justice. Section III reconsiders the objections leveled against the idea of Kaldor-Hicks or wealth maximization, and argues that the objections are either invalid or inapplicable to the ex ante efficiency norm. Section IV argues that efficiency is a term that in itself has no particular political orientation, but that the concept nevertheless can serve as a component of a conservative political philosophy, whether one wishes to hold such a philosophy or merely understand it when held by others.

Resolving intergenerational conflict over the environment under the Pareto criterion

Climate change policies create intergenerational winners and losers because the costs come first and the benefits later. In such cases, Kaldor-Hicks cost-benefit analysis seeks potential Pareto-improvements by showing the hypothetical potential for the winners to compensate the losers via lump-sum transfers. In their absence, once a costly climate policy is actually implemented, it unleashes distortions and general-equilibrium effects rendering unclear whether Kaldor-Hicks potential improvements lead to actual improvements. We study policies which, once implemented, would pass the Pareto test that no generation subsequent to policy action be made worse off than before. We develop a stylized climate-economy model in which production by the current generation generates pollution which “damages” production for future generations. Over time, the business-as-usual (BAU) economy gets increasingly polluted, consumption falls, and generational welfare levels decline. A government introduces costly pollution abatement and finances it via distorting taxes and the sale of debt (“green bonds”). Pollution levels start to decline, generating downstream welfare gains which may be taxed – without hurting anyone, in a Pareto sense – to help finance the policy and pay off the debt. Along the transition, every generation faces less pollution, consumes more and is happier than if life had continued in the BAU world.

Is the “Point” of the Market Pareto or Kaldor-Hicks Efficiency?

Is the “Point” of the Market Pareto or Kaldor-Hicks Efficiency?

A contribuição da análise de custo-benefício na avaliação da efeciência de regras fundiárias no Distrito Federal

Este artigo se propõe a fazer uma análise inicial de alguns dispositivos do Plano Diretor do Ordenamento Territorial (PDOT) do Distrito Federal, pelo diálogo de autores da Análise Econômica do Direito (AED), incluindo visões modernas sobre o significado e implicações práticas daquelas normas. Além disso, expõe os princípios básicos e as definições daquele recente setor jurídico, particularmente o critério de Kaldor-Hicks e a análise de custo-benefício, a fim de avaliar a eficiência de aspectos da política pública de terras distritais para, ao final, indicar algumas sugestões quanto a futuras propostas legislativas relacionadas ao tema.

Distributional Weights in Environmental Valuation and Cost-benefit Analysis: Theory and Practice

Cost-benefit analysis (CBA) is built on the Kaldor-Hicks efficiency criterion whereby projects that have aggregate positive net benefits are recommended even if those who lose are not compensated for their losses. Two kinds of problems can be identified with the use of the criterion. First, as income tends to affect monetary welfare changes positively, the preferences of those with higher wealth have a larger weight in societal decision-making. Second, monetary welfare changes can be thought of as changes in real income, which matter more for those with a lower initial wealth level. Both problems can be mitigated with distributional weighting. Despite their strong theoretical pedigree, distributional weights have been largely neglected in practical CBAs, one exception being analyses in climate change economics. We present the theory of distributional weighting and illustrate how weights can be applied empirically in an international environmental CBA that deals with marine water quality improvements. We show that different weighting schemes can result in different policy recommendations. We also show that taking the income distribution within countries into account can change a country's willingness to participate in the water quality improvement program and that the income elasticity of willingness to pay (WTP) is an important indication of the direction of change.

Responsibility, inequality, efficiency, and equity in four sustainability paradigms: insights for the global environment from a cross-development analytical model

This paper develops a theoretical framework to assess the feasibility of global environmental sustainability solutions based on one or more value changes. The framework represents four sustainability paradigms (weak sustainability WS, a-growth AG, de-growth DG, strong sustainability SS) and five value changes (i.e. a sense of responsibility for nature, future generations, or the current generation in developing countries; aversion to inequality for the current generation or future generations). It defines solutions in terms of consumption, environment use, and welfare for representative individuals in both developed (OECD) and developing (non-OECD) countries. Solutions are characterised by efficiency (i.e. Pareto and Kaldor–Hicks) with respect to welfare and by intra- and inter-generational equality for consumption, environment use, and welfare, by confirming internal consistency and consistency with alternative equity approaches for utilitarianism (i.e. Harsanyi), egalitarianism (i.e. Arneson for welfare; Dworkin for consumption or environment use; Sen for consumption and environment use), and contractarianism (i.e. Rawls). Theoretical and operational insights are described for alternative sustainability paradigms and equity approaches. In terms of feasibility based on improved technology, decreased population, and modified consumption, the ordering is responsibility for future generations > responsibility for the current generation in developing countries > aversion to inequality for the current generation > aversion to inequality for future generations and AG > SS > DG > WS: responsibility for nature is unfeasible. In terms of internal consistency, responsibility for future generations > responsibility for the current generation in developing countries = aversion to inequality for the current generation = aversion to inequality for future generations and SS > AG > DG; WS is internally inconsistent. In terms of consistency with an equity approach, responsibility for future generations > responsibility for the current generation in developing countries = aversion to inequality for future generations > aversion to inequality for the current generation and SS > AG > DG > WS.

Friedrich A. Hayek

F.A. Hayek focused on many traditional economic questions, and also made important contributions to law and economics. His framework differed from Kaldor Hicks efficiency and the wealth maximization norm common among neoclassical law and economics scholars. But he talked about how the common law evolves and helps shape economic outcomes. Underlying this approach was Hayek’s conviction that the essence of law is not created by the state, but rather preexists in the conventions and understandings within a community. Hayek argued that the role of the judge in a common-law system is to discover the law in the imminent consensus of norms and expectations. Hayek’s work has many implications for positive analysis and normative discussions of what judges should or should not do. To Hayek, the primary purpose of the law is not a wealth maximization problem, but to provide a stable institutional framework in a dynamic world that enables individuals to plan and coordinate.

Coal saving in China: from Pareto-Koopmans to Kaldor-Hicks criterion

PurposeIn the creation of coal consumption reduction policy, the Chinese Government selected eight provinces as key provinces and encouraged them to replace coal with other non-coal energy, involving Kaldor-Hicks improvement. The purpose of this paper is to answer how much coal can be conserved if Kaldor-Hicks improvement is considered.Design/methodology/approachA DEA model reflecting Kaldor-Hicks improvement is suggested to calculate the potential of coal reduction, and an endogenous directional distance function model is proposed to calculate the energy consumption efficiency.FindingsThe results show that the non-key provinces wasted more coal than the key provinces, although the latter are of more concern. From the Kaldor-Hicks criterion, ten non-key provinces in a certain year can save more coal from an energy substitution policy and eight key provinces cannot. Through measurement of coal and energy efficiency, it is also found that provinces with an abundance of coal perform the worst in China.Originality/valuePrevious studies measuring Chinese saving potential of coal mainly focused on Pareto-Koopmans criterion, not consistent to policy practices. This study changes to Kaldor-Hicks criterion, allowing to make some factors better off and other factors worse off.