2.4 Shadow price of capital
An alternative is to use the shadow price of capital. This involves converting all costs and benefits into their corresponding changes in consumption. Then the social rate of time preference is used as the discount rate. The conversion of costs to changes in consumption, which may reduce either consumption or private investment in the first instance, requires finding the shadow price of capital. The shadow price of capital is not observable directly in the market. The calculations used to derive an estimate are complicated and involve a certain about of subjectivity.
