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Question 3. This question basically asks you to compare the Arrow- Debrue model to the Dreze-Stern model. a. What features of the Arrow-Debrue model make

Question 3.

This question basically asks you to compare the Arrow- Debrue model to the Dreze-Stern model.

a. What features of the Arrow-Debrue model make it problematic to use in project evaluation ?

b. How is the Dreze-Stern model more useful from a theoretical prespective for project evaluation ?

c. In the D-S model we call the shadow price a su cient statistic. Why ?

d. In general why do economists prefer shadow prices over market prices when evaluating a policy ?

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