Shadow prices diverge from marginal costs in markets with externalities
the verdict
SUPPORTED
the evidence backs this
confidence 82/100
Economic literature demonstrates that externalities introduce distortions causing shadow prices to diverge from marginal costs, necessitating targeted regulatory corrections like Pigovian taxes.
Evidence for · 2
PRODUCTION EXTERNALITIES AND LONG‐RUN EQUILIBRIA: BARGAINING AND PIGOVIAN TAXATION
1989 · cited by 14
Analyzes production externalities and market inefficiencies, noting that decentralized bargaining and market failures require complex Pigovian taxes and charges, which reflects the divergence between private or shadow pricing signals and efficient marginal costs.
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More for · 1
Shadow prices of agrochemicals in the Chinese farming sector: A convex expectile regression approach.
2024 · cited by 5
Examines the disparities between shadow prices and market prices in the context of environmental externalities from agrochemicals, demonstrating measurable divergences.