The Scitovsky paradox is a paradox in
welfare economics
Welfare economics is a field of economics that applies microeconomic techniques to evaluate the overall well-being (welfare) of a society.
The principles of welfare economics are often used to inform public economics, which focuses on the ...
which is resolved by stating that there is no increase in
social welfare
Welfare spending is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifically to social insurance p ...
by a return to the original part of the losers. It is named after the
Hungarian born
American economist
An economist is a professional and practitioner in the social sciences, social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
,
Tibor Scitovsky
Tibor de Scitovsky, also known as Tibor Scitovsky (November 3, 1910 – June 1, 2002), was a Hungarian-born, American economist best known for his writing on the nature of people's happiness in relation to consumption. He was an associate ...
.
According to Scitovsky,
Kaldor-Hicks criterion involves contradictory and inconsistent results. What Scitovsky demonstrated was it is possible that if an allocation A is deemed superior to another allocation B by the
Kaldor compensation criteria, then by a subsequent set of moves by the same criteria, we can prove that B is also superior to A.
The paradox occurs when the gainer from the change of allocation A to allocation B can compensate the loser for making the change, but the loser could also then compensate the gainer for going back to the original position. Scitovsky pointed out that to get at the correct criterion of welfare we must remove this contradiction. He has therefore offered his own criterion called the “Scitovsky Double criterion”.
The Scitovsky criterion was developed by Tibor Scitovsky in his paper “A Note on Welfare Propositions in Economics”, 1941.
Further reading
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References
Welfare economics
Microeconomic theories
Paradoxes in economics
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