The document discusses shadow pricing, a tool used in project appraisal and capital budgeting techniques, especially in developing countries. Shadow pricing measures social costs and benefits by assigning proxy values to goods and services when market prices are distorted due to imperfect competition, underemployment, and foreign exchange restrictions. While it provides a convenient way to optimally allocate resources and consider economic opportunity costs, shadow pricing also has limitations like being based on assumptions and lacking adequate reliable data.

1. Project management is like juggling three
balls- time, cost and quality.
Program management is like a troupe of circus
performers standing in a circle, each juggling
three balls and swapping balls from time to
time.
- G. Reiss

2. SHADOW PRICING IN PROJECT
MANAGEMENT
A tool used in Project Appraisal

3. TABLE OF CONTENTS
• Introduction
• Why only in
developing countries?
• Factors affecting
shadow pricing
• Basic issue of shadow
pricing
• Benefits of shadow
pricing
• Limitations of shadow
pricing
• Conclusion

4. Project
Cost benefit
analysis
Capital
budgeting
technique
Financial
analysis
Project
appraisal
Shadow
pricing

5. INTRODUCTION
• Measures social cost benefit
• Mostly used in developing countries
• Developing countries- China, India,
Nepal, Pakistan & Sri Lanka
• Proxy value of a good

6. WHY ONLY IN DEVELOPING
COUNTRIES?
• Price determination in imperfect competition
• Underemployment at existing wage rate
• Exists deficiency of fund at existing rate
• Foreign exchange at prevailing exchange
rate

7. FACTORS AFFECTING SHADOW PRICING
• Rationing of commodity
• Minimum wages
• Foreign exchange restriction

8. BASIC ISSUES OF SHADOW
PRICING
• Choice of nume’raire
• Concept of tradability
• Sources of shadow price
• Taxes
• Consumer willingness to pay

9. BENEFITS OF SHADOW PRICING
• Best and convenient tool
• Optimal allocation of resources
• Considers economic opportunity cost
• Avoids underpricing

10. LIMITATIONS OF SHADOW PRICING
• Based on assumptions
• No universality
• Non-availability of adequate
and reliable data
• A static and timeless
concept
• Indeterminable concept
• Biasness based on response and sample
• Failure to reflect long run social opportunity
cost

11. CONCLUSION
• Social cost-benefit analysis
• Used in developing countries
• Basic issues of tradability and source of
shadow price
• Convenient tool for project
• Considers economic opportunity cost
• Based on assumption
• Lack of adequate reliable data

12. THANK YOU FOR THE PATIENCE.
The Team
Anup Kujur
Bijesh Timilsina
Koshica Tamang
Nikesh Maharjan
Reetu Gochhen