Measurement of benefits and costs: efficiency pricing
This chapter introduces accounting, or shadow, prices as the bases on which to form valuations of benefits or costs. It addresses issues of measurement in situations in which prices, whether they are altered or not, are deemed not to reflect true economic or social value and in which observed prices do not even exist. The chapter outlines the need for shadow price adjustment when observed prices fall short of the standard, as a result of market distortions or the existence of disequilibrium, and when market prices are not available at all. It examines the question of efficiency pricing for market and non-market items in turn. The chapter also examines the circumstances in which it is necessary to shadow price benefits or costs where imperfect markets prevail, indirect taxes or subsidies apply, commodities are traded internationally and unemployment of resources obtains. It focuses on the case of labour, although the principles involved can be generalized to other factors.