COST-BENEFIT ANALYSIS IN THE DEVELO PfiE NT
OF WATEq P.ESOURCES
CECIL CRAWFORD KUHNE, III
Cost-Benefit Analysis in the Development
Of Water Resources
I. Cost-Benefit Analysis: An Overview
A. General Economic Principles
Price theory deals with the flow of goods and services
from resource owners to businesses and eventually to the
ultimate consumer, with the consequent effect of pricing on
the factors of that flow. l
Price theory also seeks to
demonstrate how resource prices allocate resources among
different users and geographical areas.
Only if pure competition
prevails in both product markets and resource markets will
resources automatically be allocated to maximize net national
2
product.
From an individual firm's standpoint, it is most
advantageous to use resources at their least-cost combination
and to use only the absolute amounts necessary in order to
pro.? uce at a level which maximizes profits. 3
Price theory, then, assures an efficient allocation of
resources in private markets, but c~rtain goods which society
as a whole desires will not be produced by the private sector.
The government seeks to provide for t:E!rtain beneficial goods
or services known as "merit goods."
The political process
provides for such merit goods as compulsary education,
subsidized housing, and compulsary health service.
These
meri t goods are· furnished by the government ·, regardless of
economic efficiency.
But collective goods, such as flood
control and national defense, are not furnished by private
firms because of the prohibitive costs.
Collective goods are
provided by the government due to the inability of the
marketplace to produce them, and it is thus necessary that
a formula for economic efficiency be developed in order to
get the greatest possible return on governmental investments. 4
Cost-benefit analysis has its beginnings in welfare
economics, which seeks to improve the well-being of consumers
and producers as persons by means of policy recommendations,S
and as a part of welfare economics,' cost-benefit analysis
is the application of pure allocation theory.6 Welfare
economi.cs had its beginnings in what is commonly known as
the Pareto theory.
The Pareto theory concerns itself with
an economic rearrangement in which the economic gains can
be so distributed as to make everyone in the community
' better
off ~
This, however, is an actual Pareto improvement.
A potential Pareto improvement deals with economic change
which leaves some persons better off, while leaving others
worse off • . If those who gain are willing to compensate the
losers, then there is a potential Pareto improvement.'
It
must be ' noted that although there is a gain in the analysis,
this is a quantitative gain, with some persons still suffering
8
10sses.
And, it may happen that those who lose will not
be compensated. 9 Th'is theory ( as a result, has been criticized
for causing a change in the distribution cif' income since
those individuals with lower incomes may be affected more
by · economic changes than those in the higher income brackets.
Cost-benefit analysis, too, seeks only to aggregate the
benefits of. a project and balance them against aggregate
costs, and if benefits exceed 'c osts, then the plan is eco• •
nomically justified, despite certain" aClverse effects.
B. Assumptions and Procedures
Cost-benefit analysis, like price theory, assumes perfect _
competition and the abse~ce of external diseconomies. lO Any
changes in aggregate inc~me, income distribution, and market
form have a resultant effect on both prices and a cost-benefit
ll
analysis.
Cost-benefit analysis also assumes that maximization
of national income is the I primary, if not the only, .g oal of
water resource allocation. 12
The purpose 'of a cost-benefit analysis is to require an
effective evaluation of the values of a proposed government ,
project, which will in turn lead . to an improved expe_ndi ture
of public funds. 13 It seems however that the purpose has
broadened considerably to encompass other factors. 14 The
method also serves two other basic functions. First, if the
cost-benefit ratio is to be maximized, such factors as the
size of the project 'may be altered in order to provide the
"greatest benefits. Thus, the analyst can ascertain how much
capaci ty a ' dam s'hould contain or how much navigation or
recreational facilities should be expanded. Second, cost-benefit
analysis provides a meansJ for comparing alternatives if the
project has a specific purpose. For example, if a project
is to be constructed to provide electric power, then cost-benefit
analysis allows a determination of whether a hydroelectric
I
dam, a plant using coal, or an atomic plant would be the most
economically efficient. 1S Not all economists agree, however,
that' the cost-benefit ratio can be used to compare different
projects. One commentator points out that using 'the cost-benefit
ratio to compare one project with another is fallacious and
would be analagous, in the commercial world, of using a ratio
.
t
t' d eC~S10n.
•.
16
. t s t 0 gross ' expenses .
o f gross rece~p
~n an ~nves men
A cost-benefit: ratio may cause a misalloca'tion of resources
if projects are not analyzed in a comparative manner. For
example, suppose that two mutually exclusive projects are
' compared, one having a benefit of $S and a cost of $1 (ratio
is 5) and the other having a benefit of $1,200 and a cost of
$1,000 (ratio is 1.2). The first project has a greater ratio,
l
,
17
but it would be undesirable to lose a ~200 gain for a $4 gain.
While cost-benefit analysis has largely replaced price
theory in government investments, it has ,been proposed that
cost-benefit analysis could be expanded beyond public investments
and could be used, for example, in ,private litigation over
riparian water rights. 18
The actual procedure of cost-benefit analysis is
relatively simple. The first step requires an estimation of
installation costs and annual operating costs over the life
of the project. Then the value ' of the project's output must
be estimated by ascertaining the nuinber of units to be
produced and their value. Finally, secondary, or indirect
costs and benefits are computed.
All of the costs and benefits
are then discounted with the appropriate rate in order to
arrive at the present value. 19
The costs are either subtracted
from the benefits, or the results are expressed in a ratio
(benefits as numerator, costs as denomihator), in which a
value greater than unity indicates an economically justifiable
.
20
proJect.
The concepts of what constitutes a benefit and what
constitutes a cost are indespensible to the analysis. The
terms are usually divided into primary (direct) and secondary
(indirect) benefits and costs, and then there is a further
s'ubdivision wi thin each of those two major divisions, with
these subdivisions labeled as tangible and intangible benefits
and costs.
confused.
The concepts are distinct, although frequently
Primary (direct) .costs include the initial expenditures
required to construct and maintain a project.
These costs
also include the value of any adverse effects, whether they
are compensated or not.
The primary benefits are the value
of those goods and services which result -from the expenditure
21
·
o f . t h e d 1reCt
costs.
Secondary (in~irect) costs are costs of further processing
or any other costs "stemming from or induced by" the project.
These costs include the value 'of goods and services necessary .
to make goods available for use or s 'a le.
Secondary benefits
are the benefits to the nation as a result of activities
"stemming frcm or induced by" the projece. 22 The words
"stemming from or induced by" are significant; the former
include processing such as transporting power, and the latter,
23
any change in technology or shifts in supply and demand.
The primary and secondary dichotomies i.nclude both
tangible and intangible benefits and costs.
Tangible benefits
would include the value of cotton produced as a result of
new irrigation sources/ tangible costs are. the costs of the
darn.
The rehabilitation of a drinking ground for waterfowl
might be an intangible benefit arising from a project, while
-5-
the same proje.ct would create an intangible cost by the
construction of a dam which would interfere with anadromous
fisheries. 24
C. "Willingness to Pay" and Alternative Costs
The benefits of goods and services produced by the market
system are easily ascertained, but benefits without market
values a.re determined by the concept of "willingness to pay."
In the Pareto theory, the willingness to pay is that amount
which the winners of economic change must pay to the losers
if the change is to take place. 25 The willingness to pay may
be estimated by the analyst, or it may be obtained from those
individuals who are to be affected by the change in environmental
quality, either through a referendum approach or opinion polls.26
Thus, the welfare economist is able to provide for a means of
det.ermining value in the absence of market mechanisms.
Economists
have also expanded upon the definition of
.,
costs.
Outlay costs are those costs required for construction
- and maintenance of a project, such as wages, equipment, taxes,
and so forth.
The alternative costs, or opportunity costs,
are normally· defined as "the value of the benefit foregone
by choosing one alternative rather than another."
This is
an important concept since the real cost of any activity is
measured by its alternative costs, not its outlay costs. 27
Due to the scarcity of resources, those resources used by a
firm in the manufacture of a product ~ause the total amount
of available resources to diminish, if only slightly.
If
units of a certain type of specialized labor can only be used
to asserr~le washing machines or refrigerators, then the costs
of ~he resources to the firm are the values in their alternative
uses.
The firm which decides to manufacture washing machines-
must pay the value of refrigerators that the labor could have
produced.
I.£ the manufacturer of washing machines refuses to
pay the alternative costs, then the labor will remain in
refrigeration producticn. 28
Alternative cos.t s are measured by means of input-output
tables, which show the, flow of goods and services from industrial
sector to the ultimate purchaser. 29 The input-output analysis
can also be used to assess the contributions of various
sectors of .the economy to' the disturbances in t,he ecosystems. 30
,Alternativ.e costs are used not' only to ascertain total
costs but also benefits. In cost-benefit analysis the benefits
are equal to ,the alternative cost, or the "cost of providing
comparable output by ' its cheapes,t alternatl.vc mer-me." These
alte1'nativc costs are widely used in power. ftlunicipal waste
supply, and naviga,tion. 311
The use of cost-benefit analysis in the allocation of
resources is ",lsc· infhlE,nccd by the concept of utility.
Apparent,ly, the su,bjectiye utility of society which is derived
frem consuming 9,o ods and seJ:vices is greater than the disutility
associated with disturbances to 'the e!Tlvironment. Once the
marginal utility of consumption levels off with the resulting
disutility, the system shouldlllove ' back to eqllilibtium. 32
'This disutility results from externalities which are ' the
"
' prl.va
. t e cos t s. 33 Oft en th ese
result of social costs
exceed i ng
externalities result from a firm producing at overcapacity
"
34
'
'
levels.
These externalities, or spillovers, include noise
'a~d , pollution of industry and the adverse effects upon
plants. Often the externalities are accidental and are
35
placed upon individuals who are unable to avoid their effeots.
.~
}\
II. Statutory and Judicial Responses
A. water Resources Council
Cost-benefit analysis is a well-settled theory, having
been used in ' a general way in the early part of the , century. 36
In the field of water resources development, it was first
noted in the Flood Control Act of 1936. 37 The Act recognized
that destructive floods:
constitute a menace to national welfare; ••
that the Federal Government should improve
or participate in the improvement of
navigable waters ••• for flood control
purposes if the benefits to whomsoever
the'y may accrue are in excess of the
costs, and if the lives and social securitY38
of people are otherwise adversely affected.
One economist has observed that the legal requirements
of the Act are impossible to meet becaus,e economic analysis
is not refined enough to measure all costs ' and benefits "to
whomsoever they may accrue," and furthermore, such an assessment
requires
Act. 39
sp~cific
methodology Which is not specified in the
The next development in the cost-benefit analysis for
water projects was the Proposed Practices for Economic
Analysis of River Basin Projects (1958), also known as the
Green Book. 40 This work was important because it defined
primary and secondary costs and benefits.
The Green Book was
soon superseded by Policies, Standards, and Procedures in the
Formulation, Evaluation, and Review of Plans for Use and
Development of Water ' and Related Land Resources,4l which ,
became the ,official adoption of cost-benefit analysis.
Senate Document 97 is detailed in its, definitions of
benefits (tangible benefits; intangible benefits; primary
benefits; secondary benefits)and costs (project economic
' costs; installation costs; operation, maintenance, and
replacement costs; ' induced costs; associated costs; taxes). 42
Standards of , measurement are given for each type of benefit
resulting from water projects,
inclu~:i;.ng:
(1) domestic,
municipal, and industrial water supply benefits,
benefits,
(3) water quality control benef~ts,
benefits,
(5) electric power benefits,
prevention benefits,
drainage benefits"
(2) irrigation
(4) navigation
(6) flood control and
(7) land stabilization benefits,
(9) recreation benefits. 43
(8)
This methodology
of measurement for water projects became the most sophisticated
of the resource fields.
Most importantly, the statement
provides for economic projections of the project on both the
regional and national economies. 44
The statement is not without shortcomings, however.
It
has been c 'r iticized 'as plac'i ng undue emphasis upon benefits
of a project by its preoccupation with the quantity of goods
and services produced. While ' mentionin,g economic. growth;
the statement provides no real analysis for this resulting
growth. 45
A later report of the Water Resources Council in 1971
overcame many of the difficulties of its predecessor by its
practical approach. The Proposed Principles and Standards
for Planning Water and Related Land Resources 46 0utline four
broad objectives which are to be considered in relation to
a water project: (1) national economic development, (2)
, environmental quality, (3) regional development, (4) social
factors. It should be noted at the outset that each area
requires the application of the "with and without" principle,
which requires the estimation of the beneficial and adverse
effects of a particular project after completing the project
and comparing these results ,with the situation existing if
the project were never constructed. The analyst is also aided
by the tables in the Proposed Standards which give examples
"of beneficial .and adverse effects of projects, as well as the
ramifications o'n the economic development of the area.
The first ob'jective of analysis, national economic
development, conserns' itsetf with the increase of goods and
services. ' These increases in economic efficiency are to be
balanced against the increase in environmental quality which
,
' would occur by decreasing the use of' r 'esources ordinari ly used
in the production of consumer goods. The adverse effects on
national eqonomic developme'n t are determined by measuring the
'economic value that the resources would have in alternative
uses, and while these externalities are difficult to measure,
they should be recognized.
The second consideration, environmental quality, requires
the measurement of the deterioration of environmental quality.
The Proposed Standards enumerate cla's ses of environmental entities,
such as wild andsceriic rivers, lakes, mountains,. and estuaries,
and with,i n each class there are factors , to , be , measured to
determine the detrimental effects, Le. (for es,t uarie8) the
,
.
size of the estuary, biological significance asa breeding
or feeding ground, and improvements. 47
The beneficial and adverse effects on regional development
constitute the next 'category of measurement. Beneficial
factors are increased productivity of goods and services, value
of output to 'users residing in the region as a result of
external economies or expansion ,of resource use, and additional
net income resulting from the project. Adverse effects include
taxation, external diseconomices (externalities), and the
displacement of resources.
The fouth class of effects are those social effects resulting
from a project, SUCh as distribution of wealth,or improved
safety (as provided by flood control, for example).
The P~oposed Standards also discuss the problems involved
in determining the life of the project and the discount rate.
The life of the project is to be the lesser of "(1) the period
of time over which the plan will serve a useful purpose considering
probable technological trends affecting various alternatiVes; or
(2) the point of time when further discounting of beneficial
and adverse effects will have no appreciable result on design.,,48
After determining the period of analysis, the discount rate
-is the average rate of return on private investments, including
taxation. 49
B. NEPA and the Courts
1\
Athough the National Environmental Policy Act (NEPA)
does not explicitly require a cost-benefit analysis, the Act
does ,require that "presently unquantified environmental
amenities and values may be given appropriate consideration
_
.
, an d tec h
'
1 conS1. d era t'10ns. ,,50
in decisionmaking
along w1th
econom1a
n1ca
The legislative history, in discussing ,the duties of the
Cou-n cil on Environmental Quality (CEQ), lends substance to
the -use , of the cost-benefit analysis:
One way in which this [consideration of environmental
amenities] might be done would be to develop
a , sophisticated cost and benefit analysis in which the total (and often not strictly
economic) consequences of Federal activities
.~
may be assessed. The environmental
auditing function of the Council falls
squarely within the functions specified
in this subsection.5l
52
The CEQ Guidelines are of little assistance, however,
in defining what is required in such an analysis, but the
Guidelines do reques't that the Environmental Protection
Agency be consul ted , where water .quality s 'tandards have been
set. 53 And the Environmental Protection Agency, in its
'
proposed guidelines, which were later adopted, requires a
cost benefit analysis. 54
The courts first interpreting NEPA were reluctant to
,find a cost-benefit analysis invalid unless it was shown
that the actua'l balance of costs and benefits was arbitrary
or ' clearly gave insufficient weight to environmental values. 55
The court in Sierra Club v. Froehlk~~6 however, held
a more aggresive view in regard to the analysis, after finding
a deficiency in the determination of the costs by the agency:
' However, when the claimed ' ratio is
comprised, in part, of environmental
amenities which Congress has required
under current law to be given careful
attention and consideration, then the
courts have an obligation to act, where
necessary. The standard for judicial
review is the same as for 'other features
of environmental law, being one of
"substantial inquirYi"57 •
.,
~
The court in Sierra Club pointed out that no environmental costs
were considered but that in addition to economic benefits,
the agency claimed recreational benefits -and benefits stemming
from navigation, ' water 'supply, and salinity control. 58 And
in spite of a large increase in costs over the years, the
59
cost-benefit ratio remained the same.
'III. Cost-Benefit All,alysis and Water Resources I
An Evaluation
A. The Use of Economic Theory and Quantification
,
Many problems associated with cost-benefit analysis stem
from the use of economic theory. Cost-benenefit analysis
assumes that the market is perfectly competitive and that no
externalities exist, ' so that once there is ,a change in these'
assumptions, the analysis becomes less reliable. 60 The goal
of any projec,t is the maximization of nutional income, while
the constrained variable is represented by the budget of the
61
'
federal government.
The population, however, is not interested
in the absolute size of the Gross National Product but is
interested in the income distr'i bution 'a s .it affects them
,
'
62
personally.
And, while it it is recognized that some
bUd'g etary restraint must be taken into account, the restraint
used has a sizeable effect on the cost-benefit ratio.
If some budgetary' restraint is not defined, a project may be
constructed to an excessive scale, which will result in .,the
dec~ease of funds available ' for projects more economically
desirable. 63 And furthermore, two projects might appear
similar since they have equal benefits, even though there is
a large disparity in costs. 64
since the values employed in cost-beneft analyaio are
related to values iil the mark'e tplace, their validity assumes
that the ' present distribution of wealth and in,come in the
lI'arket is acceptable. If , the purpos'e of a project is to
raise water quality in an urban area, then the lower income
groups are the milin bElneficiaries siAde they live in the
cities; but if \~ilderne5s preservation are the primary benefitl\,
then benefits are overstated because t.hey · flow to those in
,
65
.
higher incomes.
Thus, the task of economic evaluati.on is a complex one:
The water resource economist now frequently
faces a truly imposing array 'of problems
evalua ting water resources whose market
purchas e at best generates only indirect
indications Of / the relative value people
place on them; tra(:ing and evaluating
complex ' interdependencies on sys 't ems e ,f fects,
often over very large geographical areas;
and helping to guide decisions involving
great uncertain TY due to the rapid ,pace of
economic and tAchnical data. 66
Much of this difficulty results from the information
included ' in the analysis. Cost-benefit analysis has heAn
criticized as containing a bias of the analyst, which is aften
the government. 67 The statements prepar.ed by the government,
which often distort aetual benefits, seem to support this
criti~ism.68 These conscious evaluations, however, are
' reflected in the analysis. But often a proj e ct produces
results that were never ' anticipated when the analysis was
prepared. If the market fails to provide fol;' all of the
alternatives, then it is impossible to obtain the most
efficient analY6is. 69 The analysJs, therefore, may demonstrate
that welfare has increased, but it does not indicate whether
the m~ximum benefits have been achieved. 70
The use of economic analysis requires the quantification
of costs and benefits into monetary terms in order for the
, resul ts to be AXp,r esse'ct as a mathematical t:atio. ,Monetary
amounts are placed on' environmental ame nJ.tit>s as a measure' of
their value. This uSe of the price system as ' a means of
evaluation, howevp.r, is complicated, since many benefits an~
costs ' connected with environmental ' issues have no market
value, such as "the joys of ' a free flowing stream.,,71
,Kenneth Boulding, a lloted economist, believes that human
values can be reconciled jand comput"'c;l ,.with economic values. 72
The final result of the analysis is a single mathe~aticai
figure. Finding a ll11mez:ical expression to represent the
"standard of 1 iving, ',' for example, presents the same pZ'ob lems.
The many facets of environmental quality make it impossible
to interrelate all of the criteria, much of which i~ subjective,
and produce a measure of overall environmental quality to
fit into the cost-benefit ratio. 73
Assuming that environmental all\onities can be quantified "
the problem is easier when the analyst is deciding among
alternative programs; theoretically, at least, errors 'are
consistent in all of the 'factors and will hI'! reflected equally
in each. In Ii broader sense, even if there ~s an a.bso~ute
measure available in tho resources field,
the problem remains
of comparing the benefits and costs in the , resources field with
' those of other fields of government expenditures in order to
arrive at the most effi 'c ient use of government funds. 74
Despite the complexity and arbitrariness of cost-beneflt
analysis,
quantific~tion
forces the analyst to carefully
examine all possible alternatives, to account responsihly for
his own preferences, and to perceive the relations between
variables and
mar~et
restrictions in economic analysis.
The
preparation of the analysis serves an important function in com75
pelling an interdisciplinary study of the proposed project.
B. Measuring
Ben~fits
and Costs
Hany of the limitations of cost-benefit a,n<1lysis rest
within the inherent restrictions of economic analysis in
measuring benefits and ebsts.
Since the economist can only
accurately estimate short run costs,76 the analysis will
overstate costs and unde'rstate benefits.
For example, the
short term solution of placing a device on an existing plant
to abatA pollution is more expensive than 'a long term proposal
of designing a plan't for pollution abatement.
As a result,
long term costs may be omitted, and the benefits which result
from expenditures may be estimated despite a reliable method
'
t 10n.
'
77
,
O'f quan t'1 f 1ca
.,
1. Benefits
A water resource project may prbduce several benefits
which have counterparts in the mark et system.
In projects
for irrigation and flood control, ,the analyst can determin e
how much the fa rmer, has i llcre'a sed his ' productivity by c omparing '
yields before and afl:er the project. 78 or the amount of flood
damage that would have resulted to 10'Ncr riparinn landowners
in the abs e n ce of a dam. 79
In other instances the
, benefits are eas i ly identifiable
,
'
but are very di.Cficult t p measure, such as the economic
advantage which industry gains as a result of a decrease in
treatment costs 8 2r the economic advantage wh i ch il1dust ,r y 'gains
8l
from the greater availabi f ity of recreational servic;:es.
In regard to certain eecondary benefits, it i3 often possible
to d~termine tho economic effects of a project in a regional
analysis, but it is beyond the capabilities of cost-benefit
analysis to determine the economic ramifications of a project
on the national economy, even though admitt,,,J1y the national
income is increased by tho~:e projects. 82
And in the water resources field; it is not only difficult
to measure certain intangible benefits but to develop causal
relationships I these benefits include:
land values,
(1) increases in private
(2) increases in employment,
(3)
profits o.f
businesses dealing with water recipients, (4) value of water
above that paid by the recipient. 83 De5pite th£> difficulties
of evaluation of water quality improvoment, recreation, and
improved industrial and municipal water supply·, the government
has increased i ·ts reliance on such benei ts in justifying
projects.
The area of recreational benefits comprises an increasing
justification for the development of water projects. 84 The
usual procedure for evaluating outdoor recreation is by means
of a value between $0.50 and $1.50 per man-day for general
Qutdoorrecreation an.d between $2.00 and $6.00 per · man-day
for speci.alized · ·outdoor recreation. 85 These values of rec- ·
reational benefits have been criticized because they are
. arbitrary and fail · to take intoconst~eration such factors
as the proximity of· the . population to reservoirs offering
recreational benaf£ts. 8& The~e recreational benefits are
also claimed without allowing for the costs to free flowing
.
.
87
stream recreat10n.
Th1 visitors t.o these recreational areas
may be few in number, but. since they are considered high priority
visitors, . the benefits may be overstated.
On the other hand,
there may be social benefits in encouraging outdoor recreation.
The individuals who attend these recreational projects pay
littie or nothing for the privilege, so that they may benefit
. d t 0 pay. 88
more th an 1. f th ey ware reqlure
As noted . above, the willingness to pay principle has been
used in cost-benefit analysis to d~t~rmine · the va.l ue of benefits:
The mere use of this criterion gives preferential r.ights to
those who are using the ' environment for waste dispoSlll,S3
Then the analyst must make a comparison of the benefits
accruin9 to different persons, 'l'he usual procedure is to
,a dd the ben'Jfits of all people with each person given an
equal '''<"light. EVfln with this procedu're, ther" is a ,U fficult
valUe judgment required to make ,these interpersonal comparisons. 84
How much a person is willing to pay for benefits is
often determined through a referendum approach or opinion
polll3. SAveral problems may arille in this process of
questioning indIviduals. If the individual expects to be
charged for what he is willing to pay, then it is logical to
iUlflume that he wOll,ld Hant to pay the least possible amount.
If he then undervalues his willingness to P."'I.Y, he will expect
to pay less. On , the other hand, if an indi.vidUal kn('ws that
his payments for a proje1t w.o'lld be small and that the project
would be financed by the federal 90vernment, there is tendency
to
overstat.~
Uti!
,
t.'
construc10n
0f
benefits in an, effort to encourage tht!
1
,ft5
tIe
proJect.
'
, "
The willi,n gnElss to p~y approach may also be undp.restimated
in ano,ther way, Since 'the , preservation of the environment
is an important part of the real income of many indivi.duals,
the amount of compensation these individuals would require
if future generations were to be dep.f~ved of environmemtal
amenities would be much greater than the w,i llingness to pa~'
for the present benefits of the pr.oject. U6
,In adclit,ion to ' 'the concept of wi.llin-"ness to pay, benefits
may be valued by alternative c'o~t.s, ~lhich are the costs of
prol1idi.ng comparable output by means of the least expensive
'alternative. ' Th'lS, the val,ie of b~nefits of a federal power
project are equated with the CO'!lts of a prj,v,d-,e utility's
providing the same level of output. S7 Determing benefits by
means of alternative costs is 'not only employed in' power
projects I but projects for municipal ~later supply and
navigation. SS
This, practice of alternativEl costs is often misleadin,],
i.t is based on t.hE. assumpt.ion that soclety would 'mdertake
to provide · t.hose. benefits with th,;. alter·n ative meana. R9
Sinco tho project. may involve coJ.loctive goods, i .t. has been
noted that the private sAC!tor would ·have never undertaken the
proj~ct due to .l.t8 prohibitive costs.
2. CO" ts
From a theoretical standpoint. costs are easier to
compute than bonefits. It is not difficult·. 1.: 0 e .. timate how
much it ,~ill cost to construct and . operate a treat.ment plant.
But the major problem in estimating future costs consists in
predicting the amount of pollution control and the effects of
technological changes. 90 Thp. analyst needs i.nformation which
will indicate the costs of industrial praco.sHs at each level
·. ~f effJ. uen~dischargo, · for such information isnecassary to
the planning of water quality cont.r .ol fly·stems. 91
ilS
The cost-benefit ra~ios can be altered by the costs ·
.
included. . In many ratio~, indirect benefits are e~umerated,
but indi.rect costs are excludod; t.hus givin'] a more favorable
ratio. 92 B'lt ·the Corps of 1>.l Igineers, .accordin.,)" to ·some
·economists, is understatirtg its ratios by placing local
contr:i.butions of cash, land, and easements on the aide of
projed t co~ts instead of considering them as be nefits. 93 .
Since the cost concept includes consideration of a.lternative
costs, the agency may tend to ·disregard these 10wAr cost
alternatives. In most cases, 3in .~~ ·I::lie federal water planning
agancy is also involvec in th~ construction of projects,
there is Hvid'3nce t.hat these agenci(~ s "re- biaaed in favor of
·alt.ernatives requiring construction. These ;;'9E"",1.eS are
criticizf.'d for fa.i.Jing to consider measures not involVing
con"t.1"'.lC·r:ion, ,;uch · as the ·regulation of a flood pla·in instead
of a dam. Tn the area of wal·.er quality improvement, those
agencies have neglected sunh alternatives as in-plant treatment
or infrequent degradation · of water quality.94
The agency which d.isregards ·these alternative costs often
ignores .the external.i.ties resulting from a project·, such as
the soci",l costs .of ·taxation. ·The federal projects, of course,
require funds which are obtained through taxation; i f the
taxation is great, misallocations of resources may result,
.
9C,
.
often as a consequence of inflation • . . These advserse effects
rosul ting from taxation inay be minimi zed in projects which
produce th~ir own revenues . In these projects, the costs
arA confined to the amount borrowed from the government, so
that the oretically tax cl.lts will result. 96
·C. Forecasting
The th~ory of cost-benefit analysis rests upon the
assumption that future conditions can in some way be predicted
with reasonable accuracy. The seC"!ondary benefits of a water
project assume . that there will be " . suffici~nt demand for
the goods and service.s prodti.ced • . Most studies involving
project analysis rely upon the posulate that the demand for
industrial anct municipal waste will i ·ncrease at a rate
proportionate to population growth or economic change.
Behind this assumption is the belief th.a t the . demand for
water is inelastic, '.'hieh is incorrect according to economic
theory.9"l
Not only may the mf rkets disappear, but requil'ed inputs
may become scarce, population patterns may change, operating
.costs may increase, or com·p eting demands for land may intervene.
Demand for a project in th,~ present may alao shift as a
result of technological challges wh:l.cb render certain
industrial proce'lses obsolete. 9 8 .. .,
Influenced by future economic conditions, forecasting
also involves speculation as to the useful life of a project
and a discounting of the costs and benefits in order to
arrive at the present value. An increase in the nominal life
of a project has a considerable impact upon · the ratio if a
low discount rate is used. 99 But the impor.tanee of the
life ·of the project may be diminished by the practice of
giving time per.iods in th .. future less importance than the
present by means of the discount rate. lOO
The selection of the d ~ scount rate requires speculation
. . .. .
101
of future demand and technological changes. .
Inmost
government projects the discount rate ha s been the average
rate 'a t which the government can borrow. which is usually
between five and six per cent.
This rate has been defHnded
on the grolind that it is the social cost of capital and ill,
the retul:1I realized' on capital invested in alternative uses.
The rate is also supported as being realistic since the
government is able , to bor.row at long tern, government bond
r~tAs.I02
The use of this inlerest rale, however, han heen
critir:::ized a:l (~xa'.:lgerating the value of a project by under' stating the costs which are ill<.lurred in the private 'sect:or
~s a rcsult of risks and corporate taxes. 103 The same
project in the private s<)ctor, to be deemed effici e nt, wOllld
require at least a lHn per cent discount rate. 104 Thu3,
projects which are efficient in the public ucctor would be
uneconomical if attempted hy private firnls, and as a result,
there is a misal'location of resources.
It has been argued
that.]. discount rate based upon alternative costs would be
a mo ,t'e accurate measure .105
The pI'oblBRt of discount rates is particularly acute in
the de'lelopmoni: of willl3r resources. In most water projects
majo,r i ty of expenses are incurr~d in th .. early yeac.l of
project, and benefits are spread over a long period,
twenty or fifty years. Thus, a low interest rate makes
project seem favorable, while a high rate lowers the
. e ff"l.Cl.ency . 0 f th e proJec
. t • 101; r 1\ many proJects,
.
economl.C,
lohe
the
say
the
the higher rates would not have caused the ratio' to result
in a value less than unity, but it woulcfhave caused a
decrease in the level off development or a considt!ration of
' . ,
107
ot h er a 1. ternat1ves.
IV. Recommp.ndations
The theory of cost-benefit analysis is based upon the
economic concepts of marginal costs and benefits, Which .
have their normal application in market behavior. The
limitations of ' using this economic theory as a rigid rule,
,without qualifications, must be recognized. lOB
The necessity of value judgments will cause the costbenefit ratio to reflect the point of view of its analyst.
AS.more consistent ' procedures are developed, the problem of
bias will diminish" but the analysis should remain flexible
enough to allow amendments if it proves unreliable. 109 And
if a single ratio tends to be misleading, then the analysis
' could be prepared as a partial quantification with qualitative
effects being stated in an addendum. ,
The end result of a cost-benefit analysis is a numerical
, ratio.
As noted above, the comparisons of the ratios , of two
, projects will fail to take into account the relative costs
of each project. 110 This misleading aspect of the analysis
is
~liminated
if the analyst assumes that capital resources
are defined by, the federal budget.
The purpose of ' cost-benefit
analysis is to maximize the returns on public funds, so the
,
analysis ' shouldseperate capital costs fr'om operating costs
and exclude these operatirigcosts.
Ih this way, projects
having the highest ratio will result in the maximum net
111
benefits.
The absolute nature of the ratio must be subordinated to
its relative economicevaluation. 112 Thus, when two projects
are to be compared, there must be corresponding entries for
each benefit and cost.
The analysis ' can be prepared as a
"
.~ such procedure allows
balance sheet with analagous entries;
greater objectivity and accountability for value' judgments.
The costs enumerated must be consistent ,with one another in
, order to avoid "variations of capital intensity."
f
'
must also possess this same type of uniformity.
Benefits
And, lastly,
the life span of the project must be approximately the same
to avoid disparity in the ratios.11 3 ' ~f s~ch internal
consistencies are maintained by the analyst , then the errors
which result from economic measurements will be reflected in ,
all of the ratios for, a particular project and will produce
greater uniformity.
Even if the relative aspects of economic
analy~is
are
stressed, the project finally chosen may fail to allocate
resources in the most efficient manner.
As a result, a
seperate study of marginal net benefits must be made; the
marginal net benefits of the project must be equal zero fpr
the maximum benefits to be realized. At a certain point,
a project has maximum benefits which will be decreased by
a change in the size of the project, I.e. lowering or raising
the height of a dam. This type of analysis has , been undertaken
by the Corps of Engineers in studying the changes in navigation
,
channel depth.
But in most instances the agencies, which
favor construction, tend to build projects to utilize all
available resources to the point where incremental costs
greatly ou'tweigh benefits .114 ' The use of multi-purpose
reservoirs has also become a dominant feature of water
resource planning.
,And Yet i t i s often more efficient to
locate a single purpose
~eservoir
close to an urban area
than to develop a multi-purpose reservoir further away from
11S
those areas.
The economic criterion provided by cost-benefit analysis
serves well to justify projects as economically efficient,
but it revea1s ' little about the subsequent effects of those
projeCts.
,With a few alterations, ,an input-output analysis
can provide a means for determinihg the effects of a project
by placing waste disposal facHitteli jpn the input side.
The
effects on production as a result of these facilities can be
,
116
noted, as ,well as the effects of alternative proposals.
This input-output analysis points to the deficiency of the
cost-benefit analysis in stressing increases in national income
as its goal instead of stressing multiple objectives, such as
the preservation of flowing water resources. ll ?
The problem of forecasting future demands is an important
factor in the anal~sis of any ~roject, and cost-benefit analysis
should improve period analysis rather than develop new ideas
1
of what constitutes secondary benefits and costs. l 8 And
since technology often renders a project ' obsolete, the analyst
should eonsider alternative de~ign8 which allow , for these
changes, such as less durable structures or general purpose
designs which can be altered. 119
Discount rates determine present value, but the rates
used fail to provide
inf~rmation
to begin a project.
For the present year and several
for determing the best year
succeding y ears, an estimate of net benefits for each year
should be made.
If the estimates are then discounted to , the
present year, the year which indicates the greatest amount
of net benefits, or largest ratio, is the optimal ye ar to
' t he proJec
' t • 120
b eg1n
The discount rate applied to federal projects has been
underestimated, so the discount rate should include such
factors as economic risk and corporate taxes, both of which
are met by private developers. l2l since the public is taxe d
to . provide funds fo.r these projects, the national income is
maximize d only in those instances where a public project will
be as good an investment as a private undertaking. l22 And
frequenl:t:'Iy; as a result of this taxation, there is a shift
in the distribution of ihcome.
To avoid undue shifts to those
in lower income groups, the estimate of the benefits should
be measured in relation to those individuals with incomes
close to the mean.
Such a correction would tend to lower the
ratio of projects · which serve primarily to benefit those in
upper income l .e vels .123
.~ 1t
The final effectiveness of any cost-benefit ratio, .. no
matter how refined the economic procedures, depends upon the
containment of political forces, which may override the
determinations of the analysis and encourage the implementation
of undesirable projects. l24
V. Conclusion
Cost-bene fit analysis performs well as an indicator of
economic efficiency.
Problems are encountered when the
analysis is used to compare different projects .; in which
intangible benefits and costs are measured.
Valu.e judgments
must, of necessity, be made when the price system has
failed to provide for many of the results of a federal
project.
These · value judgments lead to certain abuses
)
.
by the analyst. such as f ·ailure to consider alternatives
with lower costs or alternatives more susceptible to
changes in technology.
Determining the technology of the future, as well as
its market demands, requires pr·e dictions by the analyst,
who needs this information to calculate the discount rate
and the life of the · project.
Again, the economic analysis
needs refinement, but the: analyst must strive to avoid
inflating the benefits.
Furthermore, the destruction of the environment must
be recognized as asocial cost, despite difficulties in
quantification.
In the field of water resources, the
Proposed Standards have implemented a practical approach
with specific examples of adverse effects, which should
result in greater consistency among results.
Until procedures are further refined, cost-benefit
analysis must be recognized as what it is - economic
theory.
The analysis may not solve all problems in the
water ' -resources field, but it does force the decisionmaker .
to evaluate the project carefully with asystematic
methodology.
Footnotes
lR. Leftwich, The Price System and Resource Allocation
9 (4th ed. 1970).
2 Id • at 335.
3For a discussion of least-cost combination, see
R. Leftwich, The Price System and Resource Allocation
139-41 (4th ed. 1970).
l29-~1,
40 . Eckstein, Water Resource Development 38-40 (1958),
S. Nath, A Reappraisal of Welfare Economics 164 (1969).
5w• Ramsay & C. Anderson, Managing the Environment 86-87
(1972) •
6E • J. Mishan'; Cost-Benefit , Analysis 316
(1971).
7Id • at 316.
8 Id • at ,317.
9Note , Cost-Benefit Analysis and the National
Environmental Policy Act of 1969, 24 Stan. L. Rev. 1092, 1099
(1972) •
10see generallyR. Leftwich, The Price System and Resource
Allocation ' 195 (4th ed. 1970).
. ),
ilCiriacy-wantrup, Cost-Benefit Analysis and Public
Resource Development,in Economics and Public Policy in
Water Resource Development 12 (S. · Smith ed ~- · 1964).
12
J. Sax, Water Law: Planning and Policy, ', CaSes and
M~terials 30 (1968).
13A• Reitze, Environmental ,Law Introduction-30 (1972).
l4 Id •
l5J- . Sax,
' Water Law: Planning and Policy, Cases and
Materials 29-·30 (1968).
16Hammond, convention and Limitation in Benefit~ Cost
Analysis, 6 Nat. Re"!!. J. 202 (1966).
17J~ Hi r shleifer, J. De Haven, & J. Milliman, Water
Supply 137 (1960).
18 J. Sax, Water Law: Planning and Policy, Cases and
Materials 30 (1968).
19Note , Cost-Benefit Analysis and the National Environmental
~olicy Act of 1969, 24 Stan . L. Rev. 1092, li91 (1972).
20
"
For a discussion of the applicability of these methods,
see O. Eckstein, Water Resources Development 65-69 (1958).
21proposed Practices for Economic Analysis of River Ilasin
Projects, Report of the Subcommittee on Evaluation Standards
to the Inter-Agency Committee on Water "Resources (1958).
22 Id •
23ciriacy-wantrup, Cost-Benefit Analysis and Public
Resource Deve lopment, in Economics and Public policy in
Water Resource Developmen~ 15-17 (s. Smith ed. 1964).
24
Id. at 12.
25 E • J • Mishan, Cost-Benefit Analysis 316 (1971).
.
26 J • Hirshleifer, J. De Haven, & J. Milliman, Water
Supply 86-87 (1960).
)
27 M• Spe ncer, Contemporary Economics 361 (1971).
S"pencer gloves this sJ.mplified example "of alternative costs:
To a student, the cost of getting a full time college
education includes not only his outlay costs, i.e. costs for
tuition and books, but also the income he fore"goes by not
working full time.
28 R . " Leftwich! The Price System and Resource Allocation
144 (4th ed. 1970).
" 29
See generally Leontief, JThe Review of Economics and
Statistics
262~69
(1970).
30
.
Other uses of input-output tables include the
establishment of priorities in environmental polici, the
impact of ecological technology on economic and ecological
systems in general, and the measurement of alternative
costs in a particular ecological stabilization system.
W. Ramsay & C •. Anderson, Managing the Environment 80-81
(1972).
31 0 • Eckstein, Water Resources Development 52-53 (1958).
321'1. Ramsay & C. Anderson, Managing the Environment
85-86 (1972).
·33 The economic theory involved in externalities is
discussed in R. Leftwich, The Price System and Resource
Allocation 195 (4th ed. 1970).
341'1. Ramsay & C. Anderson, Managing the Environment
88-89 (1972) .
35E.J.Mishan, Cost-Benefit Analysis 102 (1971).
36For a discussion of early statutes and decisions
which employed .what · amounted to cost-benefit analysis,
see Tre1ease, Policies for Water Law: Property Rights,
Economic Forces, and Pub1io Regulation, 5 Nat. Res. ,J. 1,
17-18 (1965).
37 Act of June 22, 1936, Pub. LI, 1.No. 74-738,49 Stat.
1570.
38 Id •
390 • Eckstein, Water Resource Development 47-48 (1958).
40proposed Practices for Economic Analysis of River Basin
Projects, Report of the Subcommittee ' on Evaluation Standards
to the Inter-Agency Committee ,on Water Resources '(1958) .
41Water Resources Council, Policies, Standards, and
Procedures in the FormulatIon, EvaluatIon, and Review of
Plans for Use and Development of Water and Related Land
. Resources, S.Doc. No. 97, 87thCong., 2dSess. (1962).
[hereinafter re'ferred to as Senate Document 97)
42 Id . , at 8-9.
43 Id • at 10.
44 Id • at 7.
45 Fcilz ,' .Public and Private Investment in Resources
Development, in Land and Water, Use 333-34 (W. Thorne ed.
i 1963) •
. 46
Proposed Principles and Standards for Planning Water
and Related Land Resources, 36 Fed. Reg. 24144 (1971).
(hereinafter referred to asPrciposed Standards)
47 Id • at 24160.
48 Id • at 24167.
49. Id • at 24166.
50National Environmental . Policy Act, 42 U.S .C. ~ 4332
(1969) •
, 51
H.R. Rep. No. 91-378, 91st Cong., 1st Sess. 2751,
2760 (1969) •
,
.. S2 CEQ Gliidelines, 36 Fed. Reg. 7723 (1971).
53 Id • at 7724.
54Environmental Protection Age99¥' Environmental Impa c t
Statements, Procedures for Preparation, 37 Fed. Reg. 883
(1972) •
55
.
EDF v. Corps of Engineers, 470 F.2d 289, 300(8th Cir.
1972); Calvert Cliffs' Coordinating Comm. v. United States
A.E.C., 449 F.2d . 1109, 1115 (D.C. Cir. 1971).
56sierra Club v. Froehlke, 359 F. Supp. 1289 (S.D, Tex.
1973) •
57 Id • at 1365.
58 Id • at 1368 •
. 59 Id .' at 1369.
60 R • Leftwich, The Price Syatem and Resource Allocation
'195 ' (4th ed. 1970); Ciriacy~Wantrup, Cost-Benefit Analysis
and P,ublic Resource Development, in Economics and Public
Policy in Wat.er Resource Development 12 (s. Smith ed. 1964).
61The effects ofbadgetary restraint are discussed in
O. Ecksteiri, Water Resource Development 70-80 (1958).
62
R. Hav e man, Water Resource Investment and the Public
Interest 98 (1965).
63 0 •
Eckstein~ ,
Water Resource Development 62-63 (1958).
64Hammond, Convention and Limitation in Benefit-Cost
Anal¥.si s , 6 Nat.
65Freeman,
Re~.
J. 195, 202 (1966').
Dis~ribution
of Environmental Quality, in
Environmental Quality" Analysis 248 (A. Kneese & B. Bower
' ed. 1972).
66Kneese, Economic and Related Problems in Contemporary
Water Resources Management,S Nat. Res. J. 236, 237 (1965).
67 Bohm , A Note on the Problem of Estimating Benefits
,from Pollution Control, in Problems of Environmental
Economics 85 (1972).
6BNote , Cost-Benefit Analysis and the National Environmental
Policy Act 'of 1969, 24 Stan. L. Rev. 1092, 1104 (1972).
69coddington, Some
Limitation ~
bf Benefit-Cost Analysis
in 'Respect of Program.mes witl! Environmental Consequences,
in Problems of Environmental Economics ' 120 (1972).
70Trelease, Policies for Water Law: Property Rights,
Economic Forces. and Public Regulations,S Nat. Res; J. 1.
12 (196 5) .
71
'
W. Ramsay & C. Anderson, Managing the Environment
73 (1972).
72See Boulding, The Basis of Value Judgments in Economics,
in Human Values and Economic Policy 64-71 (s. Hook ed. 1967).
73 Bohm , A Note on the Problem of Estimating Benefits
from Pollution Control, . in Problems of Environmental Economics
85 (1972).
74
.
O. Eckstein, Water Resource Development 50-51 (1958).
' .
75 C ~r~acy-Wantrup,
.
Cost-Benef~t
Analys i s and Public
mesource Devclopment, in Economics and Public Policy in .Water
RGsource Development 11 (S. Sm~th ed. 1964).
76Assuming, of course, that long t<;lrm total costs are
lower than short term average total costs.
77 LaVe,
.
A~r
'
Po.1 1
ut~on Damage: Some
. ff~cult~es
'
.
.
~n
D~
Estimating the Value of Abatement, in Environmental Quality
Analysis 238
(A. Kneese & B. Bower ed. 1972).
78The "with and without" principle refers to the procedure
in which the project is analyzed in terms of economic
change after the project has been completed and in the
situation existing if the project was never constructed.
See O. Eckstein, Water Resource Development 51-52 (1958).
79 O. . Ec k ste~n,
.
Water Resource Deve lopment 52-53
(1 958.
)
80Kneese, Ec onomic and Related . Problems in Contemporary
Water Resources
I~anagement,
81 A.Fre e man. R.
5 Nat •. Res. J. 236, 246
(1965).
& A. Kneese. The Economics of
Environmcnt<0. Pohcy 109 (1973).
." ,~
Haveman~
82Harnrnond. Convention and Limitation in Benefit-Cost
Analysis, 6 Nat. Res. J. 195, 212-13 (1966).
83 J.
.
H~rs
hI'
e~ f er. J. De Haven, & J. Milliman. Water
Supply 162 (1960).
84 Kneese,
.
Econom~c
d P ro
. bl ems ~n
. Con temporary
an d
Reiate
Water Resources Management, 5 Nat. Res. J. 236, 242 (1965).
8S A • Reitze, Environmental Law Introduction-30 (1972),
Interagency Committee on Water Resources, H.R. Doc. No. 276.
App. V (1965).
86Kneese, Economic and Related Problems in Contemporary
Water Resour c es Management, 5 Nat. Res. J. 236; 2 42- 4 3 (1965).
87 S~erra
'
'
C1 u b v. Froehkle,
359 F. Supp. 1289, 1379
(S.D. Tex. 1973); EDF v. Corps of Engineers, 325 F. Supp.
749, 759 (E.D. Ark. 1971).
88
'
Tolley, Future Economic Research on Western River
Resources - Wi th Particular Reference to, California,
5 Nat. Res. J. 259 :, 271-72
(1968).
89 Note , Cost-Benefit Analysis and the National Environmental
Policy Act of 1969, 24 Stan. L. Rev. 1092, l.105 (1972).
90 A. Freeman, R. Haveman, & A. Kneese, The Economics of
Environmental Policy 10 (1973).
91Kneese, Economics and Related Problems in Contemporary
Water Resources Management, 5 Nat. Res. J. 236, 246 (1965).
92Harnrnond, Convention and Limitation in Benefit-Cost
Analysis, 6 Nat. Res. J. 195, 212 (1966).
93 0 . Eckstein, Water Resource Development 65 (1958).
94 Fox , Efficiency in the Use of Natural Resources:
Attainment of Efficiency in Satisfying Demands for Water
Resources, in American Economic Review 190; 201, 205 (May,
1964) •
95 0 . Eckstein, Water Resource Development 49 (1958).
96 Id. , at 50.
97 F,o x, Efficiency in the Use of Natural Resources':
Attainment of Efficiency in Satisfying Demands for Water
Resources, in American Economic Review 190, 201, 205 (May,
1964) •
98 J . Hirsh1eifer. J. De Haven, & J. Milliman, Water
Supply 160 (1960).
99 '
Fox, Eff'ici e ncy in the Use 'of Natural Resources:
Attainment of Efficiency in Satisfying Demands for Water
Resources, in
1964) •
~erican
Economic Review 190, 201, 205 (May,
lOOJ. Hirshleifer, J. De Haven, & J. Milliman, Water
Supply 160 (1960).
101Fox, Efficiency in the Use ' of Natural Resources:
Attainment of Efficiency in Satisfying Demands for Water
Resources, in American Economic Review 190, 201, 205, (May,
1964) •
102R . Haveman, Water Resour'c e Investmen,t and the Public
Interest 9B-99 (1965).
103Hammond, Convention and Limitation in Benefit-Cost
Analysis, 6 Nat. Res. J. 195, 211 (1966).
104 J . Hirshleifer,
De Haven, & J. Milliman, Water
Supply 160 (1960).
105
.
,
Hammond, Conventl.on and Limitation in Benefit-Cost
Analysis, 6 Nat. Res. J. 1.95, 211 (1966).
106 J . H
' ~rs
, hl e1' f ar,' J . De Haven, & J; ' Milliman, Water
Supply 160 (1960).
107 F ox, Efficiency in the Use of Natural Resources:
Attainment of Efficiency in Satisfying Demands for Water
Resources, in American Economic Review 190, 201,205 (May
1964) •
10BHammond, Convention and Limitation in Benefit-Cost
Analysis" 6 Nat. Res. J. 195, 201 ,<:1.\966) •
109 Id • at 214.
110For the view that the relative factors of projects will
remain the same, despite errors in forecasting, seeO. Eckstein,
Water Resource Development 50 (1958).
lllHammond, Convention and Limitation in Benefit-Cost
Analysis, 6 Nat. Res. J. 195, 202
(1966).
112 0 • Eckstein, Water Resource Development 50 (195B).
113 Id • at 55.
114 J • H!.rshleifer, J. De Haven, & ,J. Milliman, Water
Supply 160 (1960).
l15Kneese, Economic and Related' Problems in Contemporary
Water Resources Management, 5 Nat. Res. J. 236, 242-243
(1965) •
l16coddington, Some Limitations of Benefit-Cost Analysis
in Re spect of Programmes with Environmental Consequences,
in Problems of Environmental Economics 121 (197,2).
l17 R . Have man, Water Resource Investment and the Public
Intere st 98 (1965).
ll8Ciriacy-wantrup, Fast-Benefit Analysis and Public
Resource Dev e lopme nt, ~n Economics and Public Policy in Water
Resource Developme nt 18 (S. Smith ed. 1964).
119 p ox, Efficiency in the Use of Natural Resources:
Attainment of Effi6iency in Satisfying Demands for Water
Resources, ' in American Economic Review 190, 201, 205 (May
1964) .
l20Tolley, Purure E60nomic Research on Western River
Resources - With Particular Reference to ' California, 5 Nat.
, Res. J. 259, 271 (1968).
l21 J • Hirshleif e r, J. 'De Haven,
&
J. Milliman, Water
Supply 160-61 (1960).
l22 R • Haveman, Water Resource Ihvkstment and the Public
Inter e st 101 (1965).
123preeman, Distribution of Environmental Quality, in
Environmental Quality Analysis 248-49 (A. Kneese & B. Bower
ed. 1972).
124p o 1 z, Public and Private Investment in Resources
Development, in Land and Water Use 334 (W. Thorne ed. 1963).