Shadow Prices for Project Evaluation Under Alternative Macroeconomic Specifications
Clive Bell and
Shantayanan Devarajan
The Quarterly Journal of Economics, 1983, vol. 98, issue 3, 457-477
Abstract:
This paper takes the view that a project is a disturbance to an economy in equilibrium, and examines the shadow prices for project evaluation under alternative assumptions about how equilibrium is restored. When the government reacts by altering its foreign exchange reservesâ€âa nondistortionary adjustment mechanismâ€âthe 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.
Date: 1983
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