Shadow Pricing with Price Controls

Ivy Papps

Scottish Journal of Political Economy, 1993, vol. 40, issue 2, 199-209

Abstract: The vast literature on shadow pricing has concentrated on situations where the market clears, albeit imperfectly. This paper shows that, where the market fails to clear because price controls exist, there is no unique shadow price for the controlled commodity. Since the price mechanism is prevented from allocating excess demand to its highest valued use or drawing supply from its cheapest source of supply, it is necessary to have some information about the allocative mechanism in use for a particular case. This paper considers a number of possible allocative mechanisms and the implications for the shadow price in each case. Copyright 1993 by Scottish Economic Society.

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:40:y:1993:i:2:p:199-209

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Scottish Journal of Political Economy is currently edited by Tim Barmby, Andrew Hughes-Hallett and Campbell Leith

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