On the relationship between the Hicksian measures of change in welfare and the Pareto principle
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The change of welfare for one individual can be measured by the compensating variation (CV) or equivalent variation; the change for a whole society can be evaluated by summing up the individual gains and losses (e.g. Σ CV). Generally there is no equivalence between the positive sign of this sum and a potential improvement for all individuals by redistribution of incomes. In this paper the Σ CV-measure is corrected in a manner such that the new measure is equivalent to the Pareto principle. This correction is defined in a general equilibrium framework and takes into account the attainability of allocations. Finally characterizations of compensation tests are derived.
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