Explain Hicks's compensation principle in welfare economics.
The compensation principle, as I formulated it, offers a way to judge whether a policy change leads to an improvement in overall economic welfare. The core idea is that a change is considered an improvement if the winners from the change could potentially compensate the losers and still be better off. This hypothetical compensation, rather than actual redistribution, allows us to sidestep the difficulties of interpersonal utility comparisons while still identifying potentially beneficial economic shifts.
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