A complete characterization of potential compensation tests in terms of Hicksian welfare measures

In this paper, we present complete characterizations of the compensation te sts for potential Pareto superiority proposed by Kaldor, Hicks, and Samuels on in terms of the aggregate Hicksian measures of income compensation, incl uding compensating and equivalent variations. The key to obtaining these ch aracterizations lies in recognizing that each potential compensation test e ntails a search over possible outcomes, rather than a comparison of only th e new and original outcomes, as with standard cost-benefit measurements. Th e search implied by each compensation test can, in principle, be replicated by using the aggregate Hicksian welfare measures.