Water-Resource Development: The Economics of Project Evaluation

Water-Resource Development: The Economics of Project Evaluation

Water-Resource Development: The Economics of Project Evaluation

Water-Resource Development: The Economics of Project Evaluation

Excerpt

The federal water-resource program has been the subject of much controversy in recent years. Among the points of contention have been the methods by which federal agencies have evaluated and justified their proposed projects. In each case, a benefit- cost analysis is prepared which provides estimates of the value of outputs and of their costs. Projects are usually considered justified only if total benefits exceed total costs.

The present study analyzes the procedures for measuring benefits and costs employed by the two major agencies which are building federal water-resource projects today: the Bureau of Reclamation of the Department of the Interior and the Corps of Engineers, U.S. Army. The analysis is based on the theory of welfare economics; it treats benefit-cost analysis as a means of testing the quality of a project and of selecting the most desirable projects from the point of view of economic efficiency. It is assumed that judgments about changes in the distribution of income and about the political and social objectives must be left to Congress and to administrators, and that the national interest is best served by benefit-cost analyses which reveal each project's impact on the total real national income to be enjoyed by the country.

In Chapters II to IV the portions of the theory of welfare economics are outlined which pertain particularly to project evaluation, and the benefit-cost criterion is derived from the theory. Chapters V to VIII are devoted to the procedures in four major fields of water-resource development: flood control, irrigation, navigation, and electric power. The present extent of cost sharing by the beneficiaries is explored together with the amount of local charges that economic analysis suggests. Finally, as part of the study of the financial features of projects, the principles and techniques by which joint costs can be allocated are discussed.

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