Scitovsky paradox

The Scitovsky paradox is a theory which states that in welfare economics there is no increase in social welfare by a return to the original part of the losers. It is named after the American economist Tibor Scitovsky.

What he demonstrated was that if an allocation A is deemed superior to another allocation B by the Kaldor compensation criteria, 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.

Literature

#Scitovsky, "The Joyless Economy: An Inquiry into Human Satisfaction and Consumer Dissatisfaction" (Oxford, 1976) ISBN 0195073479