More harm than benefit
The Kaldor-Hicks test is entirely consistent with mainstream economics’ foundations in the classical utilitarianism of Jeremy Bentham, for whom the balance of pleasure and pain is both the chief motivator of human action and its evaluative standard for ethical purposes. An unfortunate effect of the utilitarian foundations of modern economics in general, and Kaldor-Hicks in particular, is that it has erased the concepts of rights and wrongs from the lexicon. This chapter utilizes the deontological ethics of Immanuel Kant, a moral philosophy that contrasts with utilitarianism and focuses instead on dignity, duty, and rights, to explain the gaps left by the Kaldor-Hicks test and the utilitarian basis of economics in general. It explores the implications of the neglect of rights for standard economic concepts such as the Coase Theorem, externalities, and antitrust law, all of which may be interpreted very differently if the importance of rights were acknowledged and incorporated into economic theory, practice, and policy.