DEFINITION of 'Shadowing'

The process of creating values for variables that don't rely purely on market value. Some of these variables have a market value in the present but have indeterminable future market values due to variable conditions.

Shadowing is used as in cost-benefit analysis, which allows analysts to evaluate the future comprehensive value of a variable in any number of projected conditions.

BREAKING DOWN 'Shadowing'

Shadowing calculates a shadow price for the variable rather than relying solely on market price, which is how the value of economic variables tends to be measured. This hypothetical shadow price is calculated largely based on the opportunity costs and benefits of the projected scenario. By taking into account the potential costs and benefits of any given scenario, the value of the variable then reflects those circumstances in its determined worth.

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