The Pareto criterion and the Kaldor Hicks criterion

We define and discuss the Pareto and the Kaldor Hicks criteria, and show how, if we care about distributional issues or the feasibility of compensating the losers, they both have a role to play in transport cost benefit analysis. To the extent that travelers in our models are too diverse to be represented by a representative consumer, their consumer surpluses cannot be added without strong ethical assumptions, and so the Kaldor Hicks criterion cannot legitimately be applied. We mention some ways to evade this problem, including the widely used “average consumer” approach or reverting to voting theory.