A
Kaldor–Hicks improvement, named for
Nicholas Kaldor and
John Hicks, also known as the
Kaldor–Hicks criterion, is a way of judging economic re-allocations of resources among people that captures some of the intuitive appeal of
Pareto improvements, but has less stringent criteria and is hence applicable to more circumstances. A re-allocation is a Kaldor–Hicks improvement if those that are made better off could
hypothetically compensate those that are made worse off and lead to a Pareto-improving outcome. The compensation does not actually have to occur (there is no presumption in favor of status-quo) and thus, a Kaldor–Hicks improvement can in fact leave some people worse off.