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Scitovsky Reversals and Practical Benefit-Cost Analysis
1University of Maryland
1University of Florida
1University of Washington, Seattle
Citation Information: Journal of Benefit-Cost Analysis. Volume 3, Issue 2, Pages –, ISSN (Online) 2152-2812, DOI: 10.1515/2152-2812.1109, May 2012
- Published Online:
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.