222 PONTIFICTAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA -
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the finished output in terms of which he defines a particular project.
Should these inputs be described in terms of intermediate or only
primary factors? What source of information can be tapped to de-
termine prices considered as given in the proposed computations?
In other words, how should the cut off point or points be determined
beyond which he does not intend to push the application of maximiz-
ing procedures involving explicit consideration of several well-defined
alternatives.
ALLAIS
I want to underline only one point. It is in fact very difficult
to choose the right indicative prices without very close connection
with the market, without the pressure of the market. And I can
give two very striking examples. The first one concerns the cal-
culations of the French National Electricity Board. A few years
ago the engineers were calculating projects using a very low rate
of interest. When these calculations had been made they had the
choice between different projects. The rate of interest chosen for
the calculations was something about 3 per cent, I don’t remember
exactly. Later in order to make a final choice, they used a new
rate of interest of 8 per cent, as a result of general instructions issued
by the Commissariat au Plan. Correspondingly, the result that each
project effectively retained represented an over-investment. The
final outcome of this error of principle in the calculations was a
waste of resources for the French economy. This waste would have
been avoided if the decisions of the Electricity Board had followed
the rules of the market economy.
The second example is the indicative price for coal which the
Three Wise Men designated by the European Coal and Steel Com-
munity in 1957 advised should be used for the energy policy of the
Europe of the Six. This shadow price was 22 dollars per ton of
American coal c.i.f. European port. But four years later the price
was only 12 dollars. If there had been a real and reliable market,
3] Dorfman - pag. 36