The Structural Funds of the European Union
Edited by Massimo Florio
Chapter 13: Regional Welfare Weights
Erhun Kula INTRODUCTION In a good part of the literature on welfare economics, the Pareto rule has been given a substantial emphasis. This rule states that a society would be made better oﬀ if at least some of its members improved their position without making anyone worse oﬀ. Some economists realized that as no project is likely to meet this rule, then no project should ever be approved. Addressing this problem, Kaldor and Hicks modiﬁed the Pareto rule by suggesting that a project should be allowed if it improved the well-being of some people even though others might lose out, provided that the gainers compensate the losers and still are no worse oﬀ. This is the basic principle of the so-called Kaldor–Hicks compensation criterion. The Kaldor–Hicks principle has been criticized on the grounds that, in reality, compensation is not paid and thus the rule simply gives an excuse to governments to go ahead with projects that may create lasting injury to some members of society. Often the losers tend to be the weak and unprotected in society. Deciding on the nature and level of the compensation, if it ever were to be paid, is an even more diﬃcult problem. Who’s going to compensate fully the ﬂood victims who suﬀered enormous losses in the summer of 2002 in Eastern Europe which may be due to global warming. Many scientists believe that these ﬂoods will intensify in years to come These are thorny but relevant questions that...
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