Environmental equity and sustainability: rejecting the Kaldor-Hicks criteria

An implementable translation of environmental equity and sustainability is provided for use in benefit-cost analysis. As such, the approach builds on the underlying economic structure of benefit-cost analysis while trying to cause it to evolve in ways that take into account issues of greater concern to ecological economists. Environmental equity and sustainability are inte rpreted as imposing new decision criteria that require additional benefit-c ost tests based on actual compensation to identified sub-groups of the popu lation. This rejects the pre World War II compromise of economists regardin g potential compensation embodied in the Kaldor-Hicks criteria. For environ mental equity, a project is proposed to pass a benefit-cost test if the ide ntified group either receives net benefits or is more than compensated for its losses. For sustainability, a project is proposed to pass a benefit-cos t test if the compensation is larger than the net value of the resource, an d the net value of the resource is reinvested. (C) 1998 Elsevier Science B. V. AII rights reserved.