Shadow prices for a small open economy under uncertainty: Which expected values are valid

Clive Bell

No wp-2017-112, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: This paper re-examines the validity of using expected values to evaluate the social profitability of public investments under uncertainty. Departing from the usual assumption of an aggregate good, the setting is a small open economy that faces stochastic world prices for tradable goods and productivity levels in domestic production. It is shown that the so-called 'border price rule'—the vector of the shadow prices of traded goods is a scalar multiple of their world price vector—is, in general, invalid when the vector of mean world prices is used.

Keywords: Uncertainty; Shadow prices; Public investments (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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