Market Mechanics 53 



between market and economic returns, these departures from speci- 

 fied conditions that arise in the water resources field need more 

 detailed examination. The problem is to understand the diver- 

 gence between private returns from the sale of marketable goods 

 and services and economic returns — including those whose value 

 may not be susceptible of appropriation by an enterprise through 

 pricing. 



We begin this chapter, then, by discussing the departures from 

 the competitive conditions that are inherent in some of the major 

 purposes of multiple purpose river programs. This discussion, 

 largely by way of illustration, will be confined primarily to flood 

 control, irrigation, navigation, and power. Next, we shall point 

 out the direct interdependence of some of the interrelated func- 

 tions of a multiple purpose river project. Traditionally, a number 

 of the water derivatives from a multiple purpose river operation 

 have been made available without cost and have been commonly 

 accepted as "non-marketable." We not only shall treat these, but 

 also shall focus attention on some of the deficiencies of the com- 

 petitive model, especially as they bear on analysis of hydroelectric 

 power, which traditionally has been accepted as a marketable 

 service. In many instances, problems of indivisibility and direct 

 interdependence in hydroelectric production make power markets 

 a special case among the commodity and service markets. This 

 requires at least brief treatment. In the concluding section, we 

 shall synthesize our conclusions, based on analysis of actual circum- 

 stances in the area of river basin development, and assess their 

 implications for efficiency in the allocation of resources within the 

 context of market mechanics. If efficiency in the development of 

 water resources is to be achieved, devices for extra-market alloca- 

 tion must be used to supplement the market. This requires 

 efficiency criteria which take account of the relevant social gains 

 and costs, to be used as an aid in budgeting public revenues for 

 development of water resources. 



Interdependence and Indivisibility in Production 

 of Water Derivatives 



A number of characteristics distinguish the production and 

 distribution of water derivatives from conditions assumed in the 



