The Potential Compensation Principle and Constant Marginal Utility of Income

Martin, Stephen

doi:10.1111/jere.12240

Cited by 2 publications

(1 citation statement)

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“…The main opposition that Kaldor faced about the principle was of an ethical nature, where marginal costs were ignored and the same weightage was given to all individuals. Hicks supported the proposed approach to aggregate welfare analysis proposed by Kaldor, which had benefits [30]. The Kaldor-Hicks compensation principle emphasizes the holistic consideration of all impacts.…”

Section: Risk Redistribution Under the Kaldor-hicks Compensation Principlementioning

confidence: 90%

Development of a Preliminary-Risk-Based Flood Management Approach to Address the Spatiotemporal Distribution of Risk under the Kaldor–Hicks Compensation Principle

2020

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All over the world, probability-based flood protection designs are the ones most commonly used. Different return-period design floods are standard criteria for designing structural measures. Recently, risk-based flood management has received a significant appraisal, but the fixed return period is still the de facto standard for flood management designs due to the absence of a robust framework for risk-based flood management. The objective of this paper is to discuss the economics and criteria of project appraisal, as well as to recommend the most suitable approach for a risk-based project feasibility evaluation. When it comes to flood management, decision-makers, who are generally politicians, have to prioritize the allocation of resources to different civic welfare projects. This research provides a connection between engineering, economics, and management. Taking account of socioeconomic and environmental constraints, several measures can be employed in a floodplain. The Kaldor–Hicks compensation principle provides the basis for a risk-based feasibility analysis. Floods should be managed in a way that reduces the damage from minimum investments to ensure maximum output from floodplain land use. Specifically, marginal losses due to flood damage and the expense of flood management must be minimized. This point of minimum expenses is known as the “optimum risk point” or “optimal state”. This optimal state can be estimated using a risk-based assessment. Internal rate of return, net present value, and benefit–cost ratio are indicators that describe the feasibility of a project. However, considering expected annual damage is strongly recommended for flood management to ensure a simultaneous envisage of the performance of land-use practices and flood measures. Flood management ratios can be used to describe the current ratio of expected annual damage to the expected annual damage at the optimal risk point. Further development of the approach may replace probability-based standards at the national level.

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Section: Risk Redistribution Under the Kaldor-hicks Compensation Principlementioning

confidence: 90%