68 MULTIPLE PURPOSE RIVER DEVELOPMENT 



basin development, therefore, must take account not only of the 

 returns to individual undertakings, but also of the complex of in- 

 terrelated facilities. Moreover, if the advantages of an integrated 

 system are to be exploited efficiently, management must be co- 

 ordinated so as to maximize system output rather than outputs at 

 individual units in the interdependent system of complementary 

 facilities. 



It is here that the market mechanism may fail to allocate factors 

 efficiently in the development of a system of works. If, for example, 

 financially feasible development at site A requires development of 

 sites E, G, and H, and investments in H and G are dependent on 

 assurance of the development of sites E and A, none of these sites 

 may be developed for lack of co-ordination in the investment de- 

 cision-making process in a purely market economy. Instead, an 

 alternative site B or C may be developed which independently 

 may return full costs, but which may preclude the development of 

 the optimum system. Under these circumstances, investment in a 

 complementary set of facilities which will yield economic (and 

 financial) returns greatly in excess of its opportunity costs may be 

 foregone in favor of a relatively inefficient development of a river 

 system's economic potential. 



MULTIPLE purposes: COMPLEMENTARY PRODUCTION, 

 SUBSTITUTABILITY, AND COMMON COSTS 



The foregoing discussion of departures from our assumptions of 

 competitive equilibrium has been limited to four of the traditional 

 major functions served by river basin development. The discussion 

 has been confined to reviewing the indivisibility and interdepend- 

 ence among facilities assumed to serve a single purpose and to 

 suggesting some basic reasons for the investment indivisibility en- 

 countered in the production of water derivatives. Another general 

 area of interdependence, however, is relevant to understanding the 



mind, realizing that a comprehensive study based on prime power, energy, and 

 capacity would doubtless affect in some degree the relative magnitudes. Never- 

 theless, prime power is a significant part of the economics of such a system, and, 

 to that extent, the illustration can be regarded as indicative of the ratio of 

 increased value of plants in an integrated system as compared to their value 

 as isolated plants. 



