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Scitovsky Reversals and Practical Benefit-Cost Analysis

Published online by Cambridge University Press:  19 January 2015

Richard E. Just ,
Andrew Schmitz  and
Richard O. Zerbe
Richard E. Just
Affiliation:
University of Maryland
Andrew Schmitz
Affiliation:
University of Florida
Richard O. Zerbe
Affiliation:
University of Washington, Seattle
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Abstract

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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.

Keywords

Scitovskyinferior goodscrossing production possibility frontiersbenefit-cost analysis
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 3 , Issue 2 , 08 May 2012 , pp. 1 - 12
Copyright
Copyright © Society for Benefit-Cost Analysis 2012

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