The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Shadow Pricing

  • Ravi Kanbur
Reference work entry


When a businessman evaluates a project, he does it with a view to calculating the prospective profit from it. These calculations can be seen as taking place in two steps. At the first step, all the physical consequences of relevance to the businessman – the inputs to and outputs from the project – are assessed. At the second stage, these inputs and outputs are converted into costs and revenues, using market prices. It is natural that a private businessman should use the ruling market prices for costing inputs and for valuing sales, since these are the prices at which transactions take place and hence profit generated.


Border prices Decentralization Distribution of income Lump sum taxes Market prices Shadow pricing Social cost 

JEL Classifications

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  1. Little, I.M.D., and J.A. Mirrlees. 1974. Project appraisal and planning for developing countries. London: Heinemann.Google Scholar
  2. Sen, A.K. 1972. Control areas and accounting prices: An approach to economic evaluation. Economic Journal 82 (Supp): 486–501.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Ravi Kanbur
    • 1
  1. 1.