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Shadow prices for project evaluation under alternative macroeconomic specifications (English)

For purposes of social cost-benefit analysis, a project may be viewed as a disturbance to the economy, displacing it from some initial equilibrium to a new one. But the new configuration will depend on which particular variables adjust to restore equilibrium. This paper examines the shadow prices for project evaluation under alternative assumptions about how equilibrium is restored. When the government reacts by altering its foreign exchange reserves, the shadow prices coincide with those advocated in the manuals on social cost-benefit analysis. However, if the government adjusts its domestic expenditures or tariff rates, the shadow prices will differ from those of the manuals, except insofar as the relative shadow prices of tradeables remain their relative border prices. The paper first presents the model, followed by two cases in which domestic prices and wage rates do not vary because ad valorem tariffs are fixed and one case in which they are endogenous.


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    Bell, Clive Devarajan, Shantayanan

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    Journal Article

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    Shadow prices for project evaluation under alternative macroeconomic specifications

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    shadow price;foreign borrowing;shadow exchange rate;domestic price;world development;social cost-benefit analysis;shadow wage rate;trade among developing countries;marginal productivity of labor;interest rate management;keynesian theory;sources of tax revenue;world price;balance of payment;social welfare function;wage gap;nontraded good;demand for good;ad valorem tariffs;bundle of goods;linear expenditure system;lump sum tax;demand for labor;Population and Development;trade adjustment;cost of production;international law journal;dual exchange rate;Balance of Trade;net foreign asset;government consumption expenditure;domestic market price;supply of labor;national income accounting;unit labor;unit of labor;labor market discrimination;market wage rate;substitution in production;degrees of freedom;Foreign Exchange Reserve;foreign exchange balance;general equilibrium system;combinations of variable;income and expenditure;equilibrium exchange rate;direct utility function;private consumption;



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Bell, Clive Devarajan, Shantayanan

Shadow prices for project evaluation under alternative macroeconomic specifications (English). World Bank reprint series ; no. REP 282 Washington, D.C. : World Bank Group.