Comment on the following: Little-Mirrlees method has suggested the valuation of project investment at shadow prices of resources to correct distortions due to market imperfections.

Little and Mireless gave an approach for analysing Social Cost Benefit that is similar to the UNIDO approach. Like UNIDO guidelines, the Little-Mirrlees method also suggests valuation of project investment at opportunity cost (shadow prices) of resources to correct distortions due to market imperfections. Herein, it is important to note that for calculating the social cost benefits of a project, shadow prices are important and market price represents shadow price only in case of a perfect markets. Since perfect markets are rarely a reality so it is necessary to develop a framework for calculating the shadow prices of resources in imperfect markets like India. Little and Mirrlees suggested an elaborate methodology for calculating shadow prices of non-tradables. Use of detailed input-output tables is suggested with a view to tracing down the chain of all non-traded and traded inputs that go into their computation. However, in the case of non-availability of detailed input/output tables, a conversion factor based on the ratio of domestic costs of representative items to world prices of these items could be used for approximation of shadow prices of non-traded resources.