Abstract
The compensation principle holds that one of two possible states constitutes an improvement over the other if the gainers could compensate the losers for their losses and still be at least as well off as in the original state. The conflict between potentiality and actuality – one situation is judged better than another if everybody could be made better off in the new situation even though some in fact become worse off – ensures that the compensation principle does not allow for value-free policy decisions.
Keywords
- Autarky
- Baldwin envelope
- Barone, E.
- Bergson–Samuelson social-welfare function
- Bickerdike, C. F.
- Cairnes, J. E.
- Compensation principle
- Competitive equilibrium
- Consumer surplus
- Cost–benefit analysis
- Deadweight loss
- Debreu, G.
- Dupuit, A.-J.-E. J.
- Exchange
- Excise taxes
- Free trade
- Fundamental theorem of welfare economics
- Gains from trade
- Game theory
- General equilibrium
- Hicks, J. R.
- Hotelling, H.
- Ideal money
- Income-compensation function
- Interpersonal utility comparisons
- Kaldor, N.
- Kuznets, S.
- Lerner, A. P.
- Little, I. M. D.
- Lump sum taxes
- Marshall, A.
- Mishan, E. J.
- Monopoly
- New welfare economics
- Optimal tariffs
- Pantaleoni, M.
- Pareto optimality
- Partial equilibrium
- Pigou, A. C.
- Proportional income tax
- Revealed preference
- Ricardo, D.
- Robbins, L. C.
- Samuelson, P. A.
- Scitovsky indifference surface
- Scitovsky, T.
- Taxation of income
- Transferable utility
- Utility-possibility frontier
- Value judgements
- Viner, J.
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Chipman, J.S. (2018). Compensation Principle. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_398
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