Accounting for missing capitals: Approaches to valuation (ESCoE DP 2025-05)

Economists increasingly make the case for the measurement of missing capitals for better welfare, wealth, sustainability and productivity measures. Shadow prices represent the value of missing capital assets in economic welfare terms. This paper reviews the value concepts underlying shadow prices and the choice of estimation in practice. Four missing capital types are explored here: natural, cultural and heritage, human, and intangible capitals. We discuss the distinction between the concepts of  exchange values and shadow prices intended to capture the social welfare value of assets when these differ from exchange values for reasons such as the presence of externalities. Exchange value estimates are consistent with SNA principles, while shadow prices seek to internalise the value of non-market elements such as externalities. We first clarify the distinction and also the relation of consumer surplus to shadow prices. In addressing the question of how to value non-market benefits and costs and, thus, how to estimate shadow prices, we also provide a mapping from missing capital asset categories to valuation methods and the theory of value they embed. Finally, we discuss issues relating to asset category overlaps as well as complementarities between categories in generating welfare, presenting some key unresolved questions.