Scitovsky Reversals and Practical Benefit-Cost Analysis
The possibility of preference reversals according to the Kaldor-Hicks (KH) criterion in benefit-cost analysis has concerned economists since Scitovsky (1941) first published his results. Lawyers and philosophers have argued that the potential of reversals calls the use of benefit-cost analysis into question, implying elimination of its use. We demonstrate that reversals occur only with inferior goods in the case of static production possibilities and that reversals occur under changing production possibilities only when production possibilities frontiers cross, which is a myopic characterization that ignores practical cases of global production possibilities.
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Volume (Year): 3 (2012)
Issue (Month): 2 (May)
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- Charles Blackorby & David Donaldson, 1990. "A Review Article: The Case against the Use of the Sum of Compensating Variations in Cost-Benefit Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 471-94, August.
- Richard O. Zerbe & Howard E. McCurdy, 1999. "The failure of market failure," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(4), pages 558-578.
- Richard O. Zerbe Jr & Allen S. Bellas, 2006. "A Primer for Benefit–Cost Analysis," Books, Edward Elgar Publishing, number 3480, June.
- Schmitz Andrew & Zerbe Richard O., 2008. "Scitovsky Reversals and Efficiency Criteria in Policy Analysis," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(2), pages 1-20, December.
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