"Shadow prices" is the neoclassical way of saying, "look at the real situation; don't be fooled by capitalist market prices." Wish they'd remember that. Lange for example wasn't fooled.
At 05:43 PM 6/22/05, you wrote:
The way it works is that long-run optimization creates a set of dynamic shadow prices. Once you take these shadow prices into account, then short run optimization will work. In effect, then, if you are optimizing some manufacturing process, you would use a shadow price for oil that might be $10,000 a barrel and then go ahead and optimize, even though the market price might be $20 a barrel. On Wed, Jun 22, 2005 at 05:22:06PM +0200, Robert Scott Gassler wrote: > I remember reading Michael Intriligator's book on optimization a long time > ago. Its chapter on "the maximum principle" of dynamic optimization or > something said that if you are on the optimum long-run path, all you need > to do is optimize in the short run. If not, not. That suggested to me that > what is good in the long run has to be good in the short. Less possibility > for detours into evil in the name of eventual good. > -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Robert Scott Gassler Professor of Economics Vesalius College of the Vrije Universiteit Brussel Pleinlaan 2 B-1050 Brussels Belgium 32.2.629.27.15
