On the Shadow Pricing of Traded Commodities

Abstract

This paper extends the case for shadow pricing traded commodities at their relative international prices in benefit-cost analysis. This result is shown to hold (a) when there are nontraded commodities whose (possibly distorted) prices are indirectly affected by public production of traded commodities, and (b) when there is a government budgetary constraint. Contrary to arguments found in the literature, neither of these cases in itself provides an argument for shadow pricing traded commodities at values other than their relative international prices.