Discussion
Which of the following statements is/are true about the Kaldor-Hicks criterion ?
(i) Hicks has given his criterion from the losers' point of view
(ii) Kaldor has given his criterion from the gainers' point of view
Answer: C
Both (i) and (ii) are true.
Kaldor's compensation test asks whether the gainers from a change could compensate the losers and still be better off: it looks at the change from the gainers' side. Hicks's version asks whether the losers could not profitably bribe the gainers to forgo the change: it looks from the losers' side. Together they form the Kaldor-Hicks criterion of potential Pareto improvement.
Since both statements describe the two tests correctly, the options keeping only one, or neither, are wrong.
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