Book contents
- Frontmatter
- Contents
- Introduction
- PART I THEORETICAL ISSUES
- 1 Shadow prices and markets: Policy reform, shadow prices and market prices
- 2 Shadow prices and markets: Feasibility constraints: foreign exchange and shadow wages
- 3 Discount rates: The rate of discount for benefit–cost analysis and the theory of the second best
- 4 Risk and uncertainty: Uncertainty and the evaluation of public investment decisions
- 5 Income distribution: Allowing for income distribution
- 6 The costs and benefits of analysis: Project appraisal and planning twenty years on
- PART II HOW TO VALUE THINGS
- PART III CASE STUDIES
- Index
1 - Shadow prices and markets: Policy reform, shadow prices and market prices
Published online by Cambridge University Press: 24 November 2009
- Frontmatter
- Contents
- Introduction
- PART I THEORETICAL ISSUES
- 1 Shadow prices and markets: Policy reform, shadow prices and market prices
- 2 Shadow prices and markets: Feasibility constraints: foreign exchange and shadow wages
- 3 Discount rates: The rate of discount for benefit–cost analysis and the theory of the second best
- 4 Risk and uncertainty: Uncertainty and the evaluation of public investment decisions
- 5 Income distribution: Allowing for income distribution
- 6 The costs and benefits of analysis: Project appraisal and planning twenty years on
- PART II HOW TO VALUE THINGS
- PART III CASE STUDIES
- Index
Summary
INTRODUCTION
The objectives of the paper
Economists are often asked to give policy advice in situations where, it is claimed, prices give distorted or misleading signals. And many of them are fond of suggesting that governments should leave more to the market so that private agents can respond effectively to price incentives. While these positions are not necessarily contradictory, their juxtaposition should lead us to ask some questions. What do we mean by misleading signals? Can we define satisfactorily an index of scarcity or value which is not misleading? How do we identify the social opportunity cost or shadow price of a commodity? How do these shadow prices compare with market prices and under what circumstances will they coincide? Should governments leave decisions to the market when prices give impaired signals? How can the government improve price, tax, or regulatory incentives? How can concern with income distribution be integrated systematically with measures to improve efficiency? Generally, how can shadow prices and market prices be combined in the understanding and implementation of the reform of government policies?
The purpose of this paper is to suggest a framework for the analysis of these issues and to provide the practitioner with a structured and productive way of thinking about the problems of how market distortions should influence proposals for reform. In so doing we attempt to provide help in identifying the empirical questions that should be raised and the judgements that need to be made before deciding on a particular line of policy.
- Type
- Chapter
- Information
- Cost-Benefit Analysis , pp. 59 - 99Publisher: Cambridge University PressPrint publication year: 1994