Skip to main content
SpringerLink
Log in

Compensation Principle

  • Reference work entry
  • First Online:
The New Palgrave Dictionary of Economics

Abstract

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.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 6,499.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 8,499.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Bibliography

  • Antonelli, G.B. 1886. Sulla teoria matematica della economia politica. Pisa: Folchetto. English translation: On the mathematical theory of political economy. In Preferences, utility, and demand, ed. J.S. Chipman, L. Hurwicz, M.K. Richter, and H.F. Sonnenschein. New York: Harcourt Brace Jovanovich, 1971.

    Google Scholar 

  • Arrow, K.J. 1952. An extension of the basic theorems of classical welfare economics. In Proceedings of the second Berkeley symposium on mathematical statistics and probability, ed. J. Neyman. Berkeley/Los Angeles: University of California Press.

    Google Scholar 

  • Arrow, K.J., and F.H. Hahn. 1971. General competitive analysis. San Francisco: Holden-Day.

    Google Scholar 

  • Arrow, K.J., and T. Scitovsky, eds. 1969. Readings in welfare economics. Homewood: Irwin.

    Google Scholar 

  • Auspitz, R., and R. Lieben. 1889. Untersuchungen über die Theorie des Preises. Leipzig: Duncker & Humblot.

    Book  Google Scholar 

  • Baldwin, R.E. 1948. Equilibrium in international trade: A diagrammatic analysis. Quarterly Journal of Economics 62: 748–762.

    Article  Google Scholar 

  • Baldwin, R.E. 1954. A comparison of welfare criteria. Review of Economic Studies 21: 154–161.

    Article  Google Scholar 

  • Barone, E. 1894. Sulla ‘consumers’ rent’. Giornale degli Economisti. Series 2, 9, September, 211–224.

    Google Scholar 

  • Barone, E. 1908. Il Ministerio della produzione nello stato colletivista. Giornale degli Economisti Series 2. 37: 267–293; 391–414. English translation: The ministry of production in the collectivist state. In Collectivist economic planning, ed. F.A. Hayek. London: Routledge & Kegan Paul, 1935.

    Google Scholar 

  • Berry, A. 1891. Alcune brevi parole sulla teoria del baratto di A. Marshall. Giornale degli Economisti. Series 2, 2, June, 549–553.

    Google Scholar 

  • Boadway, R.W. 1974. The welfare foundations of cost-benefit analysis. Economic Journal 84: 926–939. A reply, Economic Journal 86 (1976), 358–361.

    Google Scholar 

  • Boulding, K.E. 1945. The concept of economic surplus. American Economic Review 35: 851–869.

    Google Scholar 

  • Cairnes, J.E. 1874. Some leading principles of political economy newly expounded. New York: Harper & Brothers.

    Google Scholar 

  • Chipman, J.S. 1976. The paretian heritage. Revue européenne des sciences sociales et Cahiers Vilfredo Pareto 14 (37): 65–171.

    Google Scholar 

  • Chipman, J.S. 1982. Samuelson and welfare economics. In Samuelson and neoclassical economics, ed. G.R. Feiwel. Boston: Kluwer-Nijhoff Publishing.

    Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1971. The compensation principle in welfare economics. In Papers in quantitative economics, ed. A.M. Zarley, vol. 2. Lawrence: University Press of Kansas.

    Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1972. Social utility and the gains from trade. Journal of International Economics 2: 157–172.

    Article  Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1973. Aggregate demand, real national income, and the compensation principle. International Economic Review 14: 152–181.

    Article  Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1976a. Why an increase in GNP need not imply an improvement in potential welfare. Kyklos 29 (3): 391–418.

    Article  Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1976b. The scope of consumer’s surplus arguments. In Evolution, welfare, and time in economics, ed. A. Tang, F.M. Westfield, and J.S. Worley. Lexington: Heath.

    Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1978. The new welfare economics, 1939–1974. International Economic Review 19: 547–584.

    Article  Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1979. On social welfare functions and the aggregation of preferences. Journal of Economic Theory 21: 111–139.

    Article  Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1980a. Real national income with homothetic preferences and a fixed distribution of income. Econometrica 48: 401–422.

    Article  Google Scholar 

  • Chipman, J.S., and J.C. Moore. 1980b. Compensating variation, consumer’s surplus, and welfare. American Economic Review 70: 933–949.

    Google Scholar 

  • Coase, R.H. 1960. The problem of social cost. Journal of Law and Economics 3: 1–44.

    Article  Google Scholar 

  • de Graaff, J. V. 1949. On optimum tariff structures. Review of Economic Studies 17: 47–59. Reprinted in Arrow and Scitovsky (1969).

    Google Scholar 

  • de Graaff, J.V. 1957. Theoretical welfare economics. Cambridge: Cambridge University Press.

    Google Scholar 

  • Debreu, G. 1951. The coefficient of resource utilization. Econometrica 19: 273–292.

    Article  Google Scholar 

  • Debreu, G. 1954. Valuation equilibrium and Pareto optimum. Proceedings of the National Academy of Sciences 40: 588–592.

    Article  Google Scholar 

  • Debreu, G. 1959. Theory of value. New York: Wiley.

    Google Scholar 

  • Debreu, G., and H. Scarf. 1963. A limit theorem on the core of an economy. International Economic Review 4: 235–246.

    Article  Google Scholar 

  • Dupuit, J. 1844. De la mesure de l’utilité des travaux publics. Annales des Ponts et Chaussées, Mémoires et documents relatifs à l ’art des constructions et au service de l’ingénieur. Series 2, 2, 2e semestre, 332–375, Pl. 75. English translation: On the measurement of the utility of public works, in Arrow and Scitovsky (1969).

    Google Scholar 

  • Edgeworth, F.Y. 1891. Osservazioni sulla teoria matematica dell’economia politica con riguardo speciale ai principi di economia di Alfredo Marshall. Giornale degli Economisti. Series 2, 2: 233–245. Ancora a proposito della teoria del baratto. Giornale degli Economisti. Series 2, 2: 316–318. Abridged English translation: On the determinateness of economic equilibrium, in F.Y. Edgeworth, Papers relating to political economy, vol. 2. London: Macmillan., 1925.

    Google Scholar 

  • Foster, E. 1976. The welfare foundations of cost-benefit analysis – A comment. Economic Journal 86: 353–358.

    Article  Google Scholar 

  • Frisch, R. 1939. The Dupuit taxation theorem. Econometrica 7: 145–150. A further note on the Dupuit taxation theorem. Econometrica 7: 156–157.

    Google Scholar 

  • Gorman, W.M. 1953. Community preference fields. Econometrica 21: 63–80.

    Article  Google Scholar 

  • Gorman, W.M. 1955. The intransitivity of certain criteria used in welfare economics. Oxford Economic Papers, N.S. 7: 25–35.

    Google Scholar 

  • Grandmont, J.M., and D. McFadden. 1972. A technical note on classical gains from trade. Journal of International Economics 2: 109–125.

    Article  Google Scholar 

  • Harrod, R.F. 1938. Scope and method of economics. Economic Journal 48: 383–412.

    Article  Google Scholar 

  • Hicks, J.R. 1939. The foundations of welfare economics. Economic Journal 49: 696–712.

    Article  Google Scholar 

  • Hicks, J.R. 1940. The valuation of social income. Economica, N.S. 7: 105–124.

    Google Scholar 

  • Hicks, J.R. 1941. The rehabilitation of consumers’ surplus. Review of Economic Studies 8: 108–116. Reprinted in Arrow and Scitovsky (1969).

    Google Scholar 

  • Hicks, J.R. 1942. Consumers’ surplus and index-numbers. Review of Economic Studies 9: 126–137.

    Article  Google Scholar 

  • Hicks, J.R. 1957. A revision of demand theory. Oxford: Clarendon Press.

    Google Scholar 

  • Hotelling, H. 1938. The general welfare in relation to problems of taxation and of railway and utility rates. Econometrica 6: 242–269. Reprinted in Arrow and Scitovsky (1969).

    Google Scholar 

  • Hotelling, H. 1939. The relation of prices to marginal costs in an optimum system. Econometrica 7: 151–155. A final note, Econometrica 7: 158–159.

    Google Scholar 

  • Hurwicz, L., and H. Uzawa. 1971. On the integrability of demand functions. In Preferences, utility, and demand, ed. J.S. Chipman, L. Hurwicz, M.K. Richter, and H.F. Sonnenschein. New York: Harcourt Brace Jovanovich.

    Google Scholar 

  • Kaldor, N. 1939. Welfare propositions in economics and interpersonal comparisons of utility. Economic Journal 49: 549–552. Reprinted in Arrow and Scitovsky (1969).

    Google Scholar 

  • Kaldor, N. 1940. A note on tariffs and the terms of trade. Economica, N.S. 7: 377–380.

    Google Scholar 

  • Kannai, Y., and R. Mantel. 1978. Non-convexifiable Pareto sets. Econometrica 46: 571–575.

    Article  Google Scholar 

  • Kemp, M.C. 1962. The gains from international trade. Economic Journal 72: 803–819.

    Article  Google Scholar 

  • Kemp, M.C., and H.Y. Wan Jr. 1972. The gains from free trade. International Economic Review 13: 509–522.

    Article  Google Scholar 

  • Kenen, P.B. 1957. On the geometry of welfare economics. Quarterly Journal of Economics 71: 426–447.

    Article  Google Scholar 

  • Koopmans, T.C. 1957. Three essays on the state of economic science. New York: McGraw-Hill.

    Google Scholar 

  • Kuznets, S. 1948. On the valuation of social income – Reflections on professor Hicks’ article. Economica, N.S. 15: 1–16, 116–131.

    Google Scholar 

  • Lerner, A.P. 1934. The concept of monopoly and the measurement of monopoly power. Review of Economic Studies 1: 157–175.

    Article  Google Scholar 

  • Little, I.M.D. 1950. A critique of welfare economics. 2nd ed. London: Oxford University Press. 1957.

    Google Scholar 

  • Marshall, A. 1890. Principles of economics. London: Macmillan. 2nd ed, 1891; 8th ed, 1920.

    Google Scholar 

  • McKenzie, L.W. 1957. Demand theory without a utility index. Review of Economic Studies 24: 185–189.

    Article  Google Scholar 

  • Mishan, E.J. 1969. Welfare economics: An assessment. Amsterdam: North-Holland.

    Google Scholar 

  • Moore, J.C. 1975. The existence of ‘compensated equilibrium’ and the structure of the Pareto efficiency frontier. International Economic Review 16: 267–300.

    Article  Google Scholar 

  • Nataf, A. 1953. Sur des questions d’agrégation en économétrie. Publications de l’Institut de Statistique de l’Université de Paris 2 (4): 5–61.

    Google Scholar 

  • Olsen, E. 1958. Udenrigshandelens gevinst [The gains of international trade]. Nationalokonomisk Tiddskrift 98 (1–2): 76–79.

    Google Scholar 

  • Otani, Y. 1972. Gains from trade revisited. Journal of International Economics 2: 127–156.

    Article  Google Scholar 

  • Owen, G. 1982. Game theory, 2nd ed. Orlando: Academic Press.

    Google Scholar 

  • Pareto, V. 1894. Il massimo di utilità dato dalla libera concorrenza. Giornale degli Economisti Series 2, 9: 48–66.

    Google Scholar 

  • Pareto, V. 1895. Teoria matematica del commercio internazionale. Giornale degli Economisti Series 2, 10: 476–498.

    Google Scholar 

  • Pareto, V. 1896–7. Cours d’économie politique, vols. 2. Lausanne: F. Rouge.

    Google Scholar 

  • Pigou, A.C. 1920. The economics of welfare, 4th ed. London: Macmillan. 1932.

    Google Scholar 

  • Ricardo, D. 1815. An essay on the influence of a low price of corn on the profits of stock. London: John Murray. In The works and correspondence of David Ricardo, ed. P. Sraffa, vol. 4. Cambridge: Cambridge University Press, 1951.

    Google Scholar 

  • Robbins, L. 1938. Interpersonal comparisons of utility: A comment. Economic Journal 48: 635–641.

    Article  Google Scholar 

  • Samuelson, P.A. 1939. The gains from international trade. Canadian Journal of Economics and Political Science 5: 195–205.

    Article  Google Scholar 

  • Samuelson, P.A. 1942. Constancy of the marginal utility of income. In Studies in mathematical economics and econometrics in memory of Henry Schultz, ed. O. Lange, F. McIntyre, and T.O. Yntema. Chicago: University of Chicago Press.

    Google Scholar 

  • Samuelson, P.A. 1947. Foundations of economic analysis. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Samuelson, P.A. 1950. Evaluation of real national income. Oxford Economic Papers, N.S. 1: 1–29. Reprinted in Arrow and Scitovsky (1969).

    Google Scholar 

  • Samuelson, P.A. 1956. Social indifference curves. Quarterly Journal of Economics 70: 1–22.

    Article  Google Scholar 

  • Samuelson, P.A. 1962. The gains from international trade once again. Economic Journal 72: 820–829.

    Article  Google Scholar 

  • Sanger, C.P. 1895. Recent contributions to mathematical economics. Economic Journal 5: 113–128.

    Article  Google Scholar 

  • Scitovsky, T. 1941. A note on welfare propositions in economics. Review of Economic Studies 9: 77–88. Reprinted in Arrow and Scitovsky (1969).

    Google Scholar 

  • Scitovsky, T. 1942. A reconsideration of the theory of tariffs. Review of Economic Studies 9: 89–110.

    Article  Google Scholar 

  • Silberberg, E. 1980. Harold Hotelling and marginal cost pricing. American Economic Review 70: 1054–1057.

    Google Scholar 

  • Vanek, J. 1964. A rehabilitation of ‘well-behaved’ social indifference curves. Review of Economic Studies 31: 87–89.

    Article  Google Scholar 

  • Viner, J. 1937. Studies in the theory of international trade. New York: Harper & Brothers.

    Google Scholar 

  • von Neumann, J. and Morgenstern, O. 1947. Theory of games and economic behavior, 2nd ed. Princeton: Princeton University Press.

    Google Scholar 

  • Wilson, E.B. 1939. Pareto versus Marshall. Quarterly Journal of Economics 53: 645–650.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    John S. Chipman

Authors
  1. John S. Chipman
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Copyright information

© 2018 Macmillan Publishers Ltd.

About this entry

Check for updates. Verify currency and authenticity via CrossMark

Cite this entry

Chipman, J.S. (2018). Compensation Principle. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_398

Download citation

Publish with us

Policies and ethics

Search

Navigation