Full text: Study week on the econometric approach to development planning

Thus the shadow prices are an instrument for appraising 
the wisdom of any specification of targets. They disclose one 
of the major implications of such a specification: the marginal 
cost of achieving each target. The appropriateness of the 
assignment of targets can be debated in the light of this infor- 
mation, which is a fruitful improvement over current practice 
which often requires responsible officials to make policy de- 
cisions at the level of design specification (the x; in our no- 
tation). Judgements about the magnitudes of incommensur- 
ables, like the diverse objectives of a public investment under- 
‘aking, can be made in a more than off-hand way only when 
responsible officials confront the trade-offs implicit in their 
The process here proposed begins with any a priori plausible 
selection of target levels, which are revised and refined as the 
marginal costs of achieving them become clearer. This pro- 
cedure envisages that the design and its objectives will evolve 
together: the design following pretty mechanically from the 
objectives; the objectives following from a critical appraisal 
of the design. 
This same model and approach can be formulated in a 
somewhat different, and instructive, way. The construction 
costs, which are to be minimized, are a function of the design 
specifications, but the outputs depend on the operating policy. 
The role of the design, as far as outputs are concerned, is 
largely to make desirable operating policies feasible. For 
instance, one cannot have a policy that calls for dispatching 
100,000 kw. of electric power from a plant whose installed 
capacity is much below that figure. Therefore, it generally (not 
quite always) fits the structure of the problem best to regard 
output in each dimension as a function of operating policy 
alone, and the design as setting limits to the choice of operating 
policy. The problem then takes this form: Choose design spe- 
cifications to minimize c(x,, ..., x,) subject to the constraints 
"37 Dorfman - pag. 12

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