44 MULTIPLE PURPOSE RIVER DEVELOPMENT 



of output of an enterprise, to an extent, may vary, independently 

 of the cost it incurs in factor markets. Equating its marginal costs 

 to the product price leaves out of account the positive or negative 

 contribution of the factor services incidentally supplied by inter- 

 dependent enterprises. 



In some respects, the conditions which would give rise to costs 

 or gains reflected outside the intermediary of the market are not 

 unlike those giving rise to collective goods. For example, precipita- 

 tion induced by means of artificial weather modification is not 

 likely to be confined to the farm of the operator who paid for 

 cloud seeding. The output of adjacent tracts of land will be 

 affected (assuming the cloud seeding was successful), not only by 

 the resource inputs of their operators, but also by the expenditure 

 for factor services of the farmer who assumed the initiative. Com- 

 pensation for the water cannot be exacted, so long as its use by 

 benefited parties cannot be made contingent on payment of a fee. 

 Similarly, an oil refinery can provide incidental services to other 

 firms, say operators of orange groves, by reducing the hazards from 

 frost through refinery smoke emission. However, compensation for 

 these services to orange growers cannot be obtained so long as the 

 supply cannot be controlled without interfering with the primary 

 objectives for which the refinery is established. Of course, the 

 emission of smoke, stack gasses, etc., is generally thought to inflict 

 losses for which victims are not normally indemnified, and doubt- 

 less this is the more usual case.^^ In short, direct interdependence 

 may have either a positive or negative effect. This, appearing as 

 uncompensated costs or gains, vitiates the accuracy of market 

 indicators for the efficient allocation of resources. 



Direct interdependence is regarded by many economists as quite 

 limited in the actual economy.^^ while this may be true as a 

 general rule, it is a pervasive phenomenon in the water resources 

 field. 



Indivisibility in Production. Implicit in the discussion of the 

 production function and marginal adjustments in the competitive 



" See William Kapp, The Social Cost of Private Enterprise (Cambridge: 

 Harvard University Press, 1950). 



" For example, see Tibor Scitovsky, "Two Concepts of External Economies," 

 Journal of Political Economy, April 1954. 



