Shadow pricing agricultural projects: an approach using unknown parameters

Abstract

The ‘Modified UNIDO Approach’ to economic analysis of projects is described. It was used in Tanzania when no national parameters were available for shadow pricing. The main features are: the choice of a domestic price numeraire; the use of cost breakdowns rather than composite conversion factors, and their application on a year-by-year basis rather than to present values; the treatment of the shadow exchange rate as an unknown and the presentation of results as a matrix of NPV values relating to different combinations of parameters; and calculation of the domestic resource cost of foreign exchange to rank the efficiency of projects in earning or saving foreign exchange.