Comparative Statics A

Comparative Statics A

Comparative Statics, a method of economic analysis. Hypotheses in economics may be developed and analysed by examining hypothetical situations or 'models'. The relationships between changing elements ('variables) in these models may be investigated in either a 'static' or a 'dynamic' setting. Comparative statics is the method of analysis in which the characteristics of the model in different situations of equilibrium are compared. In dynamics the path of adjustment from one equilibrium to another is itself studied.

Compensation, the payment made to persons, groups or institutions as indemnity for injury, loss or damage. Adjustments of this kind between private persons are governed by the general law on damages in contract and tort. Economic interest centres largely on the question of compensation for the compulsory acquisition of private property by a public authority or for loss of value due to the action of a public authority in limiting the uses to which private property may be put.

The compensation code on compulsory acquisition first emerged in Great Britain during the railway building era in the middle of the nineteenth century: later legislation on housing, nationalization measures and town and country planning have affected it. The central economic question is: What is 'adequate' compensation? There are three possibilities: the value to the owner, the cost of 'equivalent reinstatement' and 'open-market' value. The first of these provides full economic compensation but rests on a personal judgment of value that cannot readily be measured. Equivalent reinstatement cost provides a next-best alternative but is just as indefinite unless physical reinstatement is possible. Open-market value can be ascertained more readily, but it under-compensates owners other than those who would have sold at that value in any case.

Open-market value forms the present basis of compensation for compulsory acquisition under the British Town and Country Planning law. In establishing open-market value, however, the question of how far it should include elements of 'public' value created by the activities of the public authorities themselves has never adequately been settled. Alfred Marshall, for example, considered the larger part of urban land value to derive from its situation and surroundings, and thus to be 'public' value of this kind. The code relating to compensation for compulsory acquisitions deals only partially with this point; but compensation for loss caused by planning restrictions on the permitted use of property reflects it more fully. The latter compensation is strictly limited and excludes compensation for 'good neighbour' restrictions, that is, prohibition of uses which have come to be regarded generally as against the public interest.

Read more on Economic Theory - Economics Theory

Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

Economics is in the last resort a technique of thinking. The reader will therefore need to make an intellectual effort, more substantial for some web entries than for others, to get the most interest and value out of this website.