Interrelationship between Shadow Prices, Project Investment and Policy Reforms - An Analytical Framework

Abstract

The paper begins with a broad overview of shadow prices emphasizing their close relationship with the policy environment. This is followed by the description of an analytical framework which integrates shadow prices and policies. The analytical framework is then used to highlight some of the major project evaluation shadow pricing rules. The interrelationship between project investment and public policy reforms emerges from this discussion. The paper ends with a description of some major research issues that need to be considered in assessing public choice between project investment and policy reforms. This agenda for research will help in determining whether the approach described in the paper can be operationalized in terms of quantification and measurement. While the main thrust of the paper is on the analytical aspects, a brief review of actual practice provides the interface with the analytics in indicating the research agenda.