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such an error could not have arisen. This error was a very regrettable
one, for in the meantime there was an incentive to invest much
money in projects which in fact implied a waste of scarce resources
Thank vou.
DORFMAN
I greatly appreciate the comments. All of them are valid and
some deal, of course, with problems that I, myself, encountered in
my thinking, but due to defects in my exposition, were not set forth
clearly in my discussion. I share with Professor ALLAIS and also
with some of the others the feeling that it is extraordinarily difficult
to evaluate projects without heavy reliance on prices established
in markets. I judge that market prices are much more reliable
indicators of social worth than any shadow prices that a group of
experts or politicians may establish, and I think that the proposals
I have made would not be practical without a substantial substratum
of market prices, expecially those dealing with costs and the values
of certain salable outputs. But there cannot be reliable free market
prices in principle for some of the aspects of the kinds of projects
we are here discussing. In particular, this is true of the external
consequences of projects, as in the case of education, and of some
convenience aspects like those relating to speed and safety, which
come up in the design of roads. The shadow prices that I am thinking
of are used to fill in the gaps, so to speak, in the system of
market prices. Take the market prices where you have them and
be grateful. Where market prices do not exist, we need a device
for estimating social values of types of factors and of consequences
that are not priced on the markets.
I think that this response deals also with the issue that Professor
LEONTIEF has raised. I should recommend a very businesslike approach
to implementing my proposal, in effect drawing up a pro
forma profit and loss account for the project being examined. All
inputs used should be included on the cost side. be thev interme-CY
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Dorfman - pag. 37
