Final answer:
The Kaldor-Hicks criterion is an economic principle that evaluates policy changes and considers whether they make society better off overall, even if some individuals are made worse off. It is related to Pareto efficiency and aims to assess the overall welfare of society.
Step-by-step explanation:
The Kaldor-Hicks criterion is an economic principle used to evaluate whether a particular policy change has made society better off overall, even if some individuals are made worse off. It is based on the idea that if those who gain from a policy change could potentially compensate those who are harmed, then the change can be considered a net improvement. The criterion is related to the concept of Pareto efficiency, which occurs when no one can be made better off without making someone else worse off. Both concepts aim to assess the overall welfare of society.