I own a plot of land on which I vacation. My next-door neighbor wants my land as
ID: 1137424 • Letter: I
Question
I own a plot of land on which I vacation. My next-door neighbor wants my land as well, to expand his own house. The value of the land to me is $150,000. (That is, I would be indifferent between keeping the house, and losing the house but having $150,000.) The value of the land to my neighbor is $275,000. Which of the following are Kaldor-Hicks improvements?
(a) My neighbor buys my land for $200,000
(b) My neighbor buys my land for $275,000
(c) My neighbor pressures the town council to force me to sell him the land for $125,000
(d) My neighbor, while drunk, buys my land for $350,000
Explanation / Answer
ANSWER:
All the situations are showing that the winner's profit is more then the loser's loss and therefore each of them increase efficiency and can be termed as kaldor - hicks improvements.