: A numeraire in real, present-value terms is generally sufficient for most commercial calculations.
However, the application of the shadow pricing
criterion will take effect starting with the fiscal year ending December 31, 2016.
There are some major issues involved in cost benefit analysis, of which the most important are valuation of costs and benefits, shadow pricing
, discounting, income distribution, the treatment of uncertainty and the measurement of externalities (e.g., environmental impact study).
The team will tap into existing databases and ecological models and explore the use of economic methods such as shadow pricing
, contingent valuation and choice modelling.
It therefore follows that a financial firm that wants to maximise shareholder value cannot use the relatively straightforward capital pricing tools that are available to nonfinancial firms, and must seek an alternative shadow pricing
tool to determine whether an investment adds to or detracts from shareholder value.
3 For an intuitive discussion of shadow pricing
and project evaluation, see Tower (1991).
in distorted economies', American Economic Review, 69, 902-14.
The concepts of social opportunity costs and of sub-optimal savings rates, for example, were central to the form of economic analysis based on shadow pricing
espoused by Little and Mirrlees in their 1968 OECD volume and by their followers.
To the contrary, it highlights the need for creating institutional mechanisms, from formal shadow pricing
to informal interoffice negotiation, that can induce greater efficiency in the use of space resources allocated outside normal market channels.
(3)For fuller analysis, including the treatment of shadow pricing
and other issues beyond the scope of the present paper, see Brent 1990; Little and Mirrlees 1969, 1974; UNIDO 1973; Lal 1974.
Any topic of further interest could be selected for in-depth study from Chapters 3 through 10, where welfare weights, competitive equilibrium, allocative and cost efficiencies, shadow pricing
and a cost-benefit framework are discussed.