VALUATION OF PRODUCTION FORGONE AND INCREASED CONSUMPTION

Using the Little - Mirrlees approach, the valuation if agricultural production forgone (P_A), and the value of increased consumption (C - m ), must be measured at world prices. To value agricultural production forgone, a bundle of goods must be taken to represent the marginal physical product which then must be priced according to whether they are traded or non - traded, as described earlier. To value the increased consumption also requires taking a bundle of goods, distinguishing between traded and non - traded goods. To recap, standard conversion factors are recommended to re price non - traded goods, which are calculated as the average of ratios of the domestic costs of the non - traded goods in question to the world price of these inputs costs