ABSTRACT
In the literature on project evaluation, it is common enough to present formulae for calculating the shadow price, or opportunity cost, of any imports to be used in the construction or operation of the project. The employment of world prices, where they do exist, as a proxy for the opportunity costs to a country of its imports could be valid only in exceptional cases. They are certainly not valid for an importing country in which the production of some goods is taxed or subsidized or in which some imports are regulated by quotas or subjected to tariffs, or where goods exported are regulated by quotas or subjected to taxes or subsidies. In general, that is, the economist must accept the effect on all prices of government policies, and to accept also any constraints imposed by the government in any operations involved in the paying for goods or materials required by the project.
