• Table of Contents
    • Abstract
    • Keywords
    • Article
      • 1 Historical development: from Dupuit to Hotelling
      • 2 The years of the new welfare economics
      • 3 Gains from trade and optimal tariffs
      • 4 General-equilibrium theory
      • 5 Cost–benefit analysis
      • 6 Game theory
      • 7 Concluding observations
    • See Also
    • Bibliography
    • How to cite this article

compensation principle

John S. Chipman
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
Alternate versions available: 1987 Edition
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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.
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How to cite this article

Chipman, John S. "compensation principle." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 19 January 2018 <http://www.dictionaryofeconomics.com/article?id=pde2008_C000260> doi:10.1057/9780230226203.0277

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