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Shadow Prices for Project Evaluation Under Alternative Macroeconomic Specifications

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  • Clive Bell
  • Shantayanan Devarajan

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€â€a nondistortionary adjustment mechanismâ€â€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.

Suggested Citation

  • Clive Bell & Shantayanan Devarajan, 1983. "Shadow Prices for Project Evaluation Under Alternative Macroeconomic Specifications," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 457-477.
    • Handle: RePEc:oup:qjecon:v:98:y:1983:i:3:p:457-477.
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    File URL: http://hdl.handle.net/10.2307/1886021
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    Citations

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    Cited by:

    1. Clive Bell, 2017. "Shadow prices for a small open economy under uncertainty: Which expected values are valid," WIDER Working Paper Series wp-2017-112, World Institute for Development Economic Research (UNU-WIDER).
    2. MERTENS, Jean-François & RUBINCHIK, Anna, 2006. "Intergenerational equity and the discount rate for cost-benefit analysis," LIDAM Discussion Papers CORE 2006091, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Andrea Maneschi, 1990. "Income Distribution and Shadow Pricing in Open Economies," The Economic Record, The Economic Society of Australia, vol. 66(1), pages 23-31, March.
    4. Clive Bell, 2017. "Shadow prices for a small open economy under uncertainty: Which expected values are valid," WIDER Working Paper Series 112, World Institute for Development Economic Research (UNU-WIDER).
    5. Scandizzo Pasquale Lucio & Cufari Daniele, 2023. "Beyond Cost Benefit Analysis: A SAM Model for Project-Program Evaluation," Working Papers 18, SITES.
    6. Anderson, James E. & Martin, Will, 1998. "Evaluating public expenditures when governments must rely on distortionary taxation," Policy Research Working Paper Series 1981, The World Bank.
    7. Clive Bell, 2017. "Project appraisal: A revival is long overdue," WIDER Working Paper Series wp-2017-111, World Institute for Development Economic Research (UNU-WIDER).
    8. Clive Bell, 2017. "Project appraisal: A revival is long overdue," WIDER Working Paper Series 111, World Institute for Development Economic Research (UNU-WIDER).

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