Pricing Inputs and Outputs: Market Prices Versus Shadow Prices, Market Power, and Welfare Analysis

Bhattacharyya, Amitava; Kutlu, Levent; Sickles, Robin C.

doi:10.1007/978-3-030-23727-1_13

Cited by 5 publications

(4 citation statements)

References 132 publications

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“…Shadow prices reflect alternatives' constraints as explained in the following example based on micro-economics and productivity optimization. In an imperfect or inefficient market situation, demand possibly exceeds supply due to distributional effects; then, shadow price implementation allows market model extension (Bhattacharyya et al, 2019). In economics, shadow prices are used to estimate the unknown costs of a certain good or alternative.…”

Section: Capacity Constraints and Shadow Pricesmentioning

confidence: 99%

Destination choice modeling with spatially distributed constraints

Vitins¹,

Erath²

2023

JTLU

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Destination choice models are a key component of any transport and land-use model. Applications in agent-based models allow for destination choice on an individual level including personal variables, like trip purpose, or situational variables. Commonly applied methodologies stem from econometrics, discrete choice theory and utility maximization using either revealed or stated preference data. This paper presents a framework to integrate cross-section ﬂows between distinct geographic areas, which can be obtained from cordon surveys or mobile phone data. Proposed optimization methodology—based on extended shadow price theory—accommodates these complementary data sources as spatially distributed constraints, in addition to the destination capacity constraints such as workplaces. The new generic and robust optimization methodology accounts for constraints as observed on cross-section ﬂows and destination capacities while maintaining econometric choice model theory. As a proof of concept, the suggested methodology is successfully applied in a real-case, agent-based application covering the tri-national Basel region with about 2 million residents, and a large set of 2 · 104 distinct destination alternatives. Due to diﬀerent wage levels in all three countries and other reasons, the region’s cross-border commuter ﬂows are highly asymmetric. Including data on cross-border ﬂows obtained from a cordon survey, the choice model’s mean deviation declines by 20% and more on a cross-section level and even more so on a choice alternative level, compared to calculations ignoring shadow prices. Moreover, multiple scenario calculations show considerable improvements in planning and forecasting applications. The results demonstrate the suitability and relevance of the proposed approach to optimize destination choice models with limited destination capacities in geographical regions usually characterized by travel demand asymmetries.

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Section: Capacity Constraints and Shadow Pricesmentioning

confidence: 99%

Destination choice modeling with spatially distributed constraints

Vitins¹,

Erath²

2023

JTLU

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“…Inefficiencies can also arise from rent-seeking behavior and other activities meant to shift resources to certain market players or reduce competition. Bhattacharyya et al (2019) assert that when market failures happen, policies could be misinformed by the distorting signals stemming from unreliable prices not in line with socially optimal equilibrium levels. Unreliable and distorted prices can then cause welfare losses for example in terms of inefficiently allocated public and private investments, reduced incomes, and tax revenues, hindrance of credit markets, and limiting producer market entry and access.…”

Section: Introductionmentioning

confidence: 99%

“…Unreliable and distorted prices can then cause welfare losses for example in terms of inefficiently allocated public and private investments, reduced incomes, and tax revenues, hindrance of credit markets, and limiting producer market entry and access. Therefore, in markets where observed prices can be considered distorted and unreliable, identifying shadow prices that reflect the efficient values of outputs or inputs (Bhattacharyya et al., 2019) as well as the efficient allocations of outputs or inputs based on these shadow prices is essential to public and private decision making and overall societal welfare.…”

Section: Introductionmentioning

confidence: 99%

Disequilibrium effects from misallocated markets: An application to agriculture

Badau

Rada

2021

Agricultural Economics

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Prices and the allocation of resources are essential components of efficient markets. Yet due to market failures or other imperfections, observed prices, and the allocation of resources can diverge from socially optimum equilibria, misinforming private and public decision making and distorting welfare. In this study, we present a two-step framework for valuing market inefficiencies and the foregone monetary value from disequilibrium. Specifically, we measure the degree that observed prices and quantities diverge from equilibrium and capture this divergence in terms of foregone revenue impacts. Empirically, we illustrate this framework using Indian agricultural data, where we estimate that on average and over the study period this particular market has been underpriced and overproduced compared to the estimated efficient equilibrium. The potential additional gains in value to Indian agriculture from correcting this market disequilibrium ranges from $11 billion USD to $75 billion USD depending on the degree of disequilibrium and the adjustment level.

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“…Bhattacharyya A. made a comparison of market and shadow prices in the US economics and social sphere using the means of intersectoral balance [8]. This research allows to identify areas in which it is necessary to change the combination of results or costs to improve social welfare.…”

Section: Introductionmentioning

confidence: 99%

Analysis and Development of Price Models in the System MEANS of Intersectoral Balance

Mykhailo¹

2021

ECO

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At present, monetary models of equilibrium prices have received a very wide and varied application. In this paper it is proved that the application of the currently existing monetary models of the intersectoral balance is associated with significant methodical errors. It is shown that price models based on the input balance provides such a balance only in unreal cases when the prices of all sectors are the same. For realistic conditions, when these requirements are not met, errors for these models reach unacceptable values. This article proposes and thoroughly investigated new price models based on output balances which do not have the said drawbacks. It is mathematically proven that the new models satisfy the output balances and do not have methodical errors. When used, they provide zero output imbalances for both theoretical and realistic data packets. Also in the paper the calculation results are presented both for the existing monetary models of input-output balance and for new price models using a wide set of initial data. The calculations performed confirm the theoretical conclusions of the article. It is also proved that the Leontief price model is a special case of the generalized model of price indices proposed in the work.

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Pricing Inputs and Outputs: Market Prices Versus Shadow Prices, Market Power, and Welfare Analysis

Cited by 5 publications

References 132 publications

Destination choice modeling with spatially distributed constraints

Destination choice modeling with spatially distributed constraints

Disequilibrium effects from misallocated markets: An application to agriculture

Analysis and Development of Price Models in the System MEANS of Intersectoral Balance

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