08
PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 28
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 information,
which is a fruitful improvement over current practice
which often requires responsible officials to make policy decisions
at the level of design specification (the x; in our notation).
Judgements about the magnitudes of incommensurables,
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
decision.
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 procedure
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 specifications
to minimize c(x,, ..., x,) subject to the constraints
"37 Dorfman - pag. 12
