Shadow Price

The implicit value of a resource with no observable market price, reflecting the opportunity cost of using it in a particular way.

Source: Weinstein & Zeckhauser 1973

Where a resource is genuinely consumed but has no market price, or where the observed price does not reflect what the resource is worth in its alternative use. Volunteer time, informal care provided by relatives, donated goods and facilities occupied at nil charge all fall into the first category. Administered prices, monopoly prices and internal transfer prices fall into the second. In both cases using the observed figure, or treating the resource as costless, misstates what is being given up. The requirement follows from the definition of cost as opportunity forgone, so a resource with no price is not thereby without cost.

Source: Weinstein & Zeckhauser 1973

By identifying what the resource would have produced in its best alternative use and valuing that. For volunteer or carer time, the usual approaches are the earnings forgone, the market price of purchasing the equivalent service, or what the person would need in compensation. For a distorted market price, the correction removes the element attributable to the distortion, such as a tax that transfers rather than consumes resources. Each approach requires a judgement that should be stated. Where several methods are defensible, reporting the result under each is preferable to selecting one, since the choice frequently moves the total materially.

Source: Drummond et al. 2015

In valuing informal care, which is frequently large enough to change a conclusion for conditions requiring prolonged support at home. In valuing patient and carer time spent obtaining treatment. In adjusting for taxes and subsidies, which move resources between parties rather than consuming them. And in constrained systems, where the shadow price of the budget itself expresses the health forgone by committing a further unit of expenditure. Shadow pricing also arises in valuing capital already owned, where the relevant cost is what the asset could otherwise be used for rather than what was paid for it.

Source: Weinstein & Zeckhauser 1973

Because resources treated as costless are consumed without appearing in the total, which systematically favours interventions relying on them. An intervention shifting care from paid staff to family members appears to save money while transferring the burden rather than removing it. The bias operates in one direction and is invisible in the results, which makes it more serious than random imprecision and is the principal reason methods guidance recommends including these categories. The same reasoning applies to interventions relying on volunteer effort, which appear cheap precisely because a real resource is being valued at nothing.

Source: van den Berg, Brouwer & Koopmanschap 2004

The resource valued, the method used to derive the value, the assumptions behind it, and the result with and without that component included. Because the choice of method can change the figure substantially, sensitivity analysis across plausible alternatives is more informative than a single point estimate. Where a resource was known to be consumed but no defensible value could be attached, saying so is preferable to omitting it silently. Reporting the quantity of the resource alongside its assumed value allows a reader to substitute their own valuation without repeating the analysis.

Source: Drummond et al. 2015