New approach to pricing could reshape global economy and trade.
The article suggests using world prices for both traded and nontraded goods and factors when evaluating projects in open economies. The researchers argue that shadow prices should be world prices for traded commodities and exchange equivalent for nontraded commodities, unless certain constraints are present. However, the analysis is incomplete for nontraded commodities when taxes and tariffs are not set optimally. The paper proposes an alternative method to derive shadow prices.