How To Calculate Shadow Prices?
It may be clarified here that the use of shadow prices has relevance only in case of economic analysis of projects in which social return or over all return to society as a whole from a particular investment project is evaluated. In financial analysis, on the contrary, the market prices of factors are pressed into services, regardless of their true worth or opportunity costs or scarcity values. The simple reason is that financial analysis is concerned with the financial return to an equity participation or private return to an individual investor or financial contributor businessman, industrialist, farmer, joint stock company, public corporation etc. All these financial entities have a vital stake only in financial return to the capital contributed by them. The social return does not figure at all in their calculation or occupies only a secondary place. In the special circumstances of the under developed countries, the use of shadow prices for unskilled labour, foreign exchange and cap
