Market Mechanics 73 



allocations to the water resources field. In short, our efficiency 

 criteria equating social marginal productivity and cost — or incre- 

 mehtal benefits and costs — relate only to investment opportunities 

 in the water resources field. 2- 



EVALUATION OF BENEFITS 



The estimate of benefits from multiple purpose river develop- 

 ment must take account of collective goods, physical interdepend- 

 ence, indivisibility in production, and adjustment for miscellaneous 

 market imperfections. 



An estimation of the value of collective goods — principally flood 

 protection, within the context of multiple purpose river develop- 

 ment — needs to reflect the sum which beneficiaries would be willing 

 to pay for such protection if they were given a choice. Normally, 

 if beneficiaries behaved rationally in this respect, they would be 

 willing to pay no more than the cost that they would be prepared 

 to incur for repairing flood damages and avoiding the inconveni- 

 ences associated with flooding.^^ This would indicate the economic 

 value of flood prevention, subject to the lack of an alternative 

 approach — for example, flood management through zoning of flood 



means only that in terms of the efficiency objectives with which we are con- 

 cerned, the national economy is the appropriate frame of reference for the 

 benefit-cost analyses. 



^ We recognize that a comprehensive efficiency criterion for investment would 

 require that public funds be invested in every investment opportunity in which 

 the economic returns would exceed the economic costs. For example, there may 

 be investment opportunities in the private sector which, because of capital 

 rationing or other market imperfections of an institutional (in contrast with 

 a technical) nature, would provide returns to the investment of federal funds 

 equal to or greater than returns available from remaining opportunities in the 

 traditional public sector. However, we are aware that, given the prevailing 

 economic-political philosophy in the United States, there are restraints on the 

 extent to which the government can participate by direct investment. We there- 

 fore assume that other governmental policies with respect to increasing credit 

 availability to certain groups, perfecting markets through policing monopoly 

 activities, etc., are pursued to minimize the inefficiencies resulting from such 

 conditions, rather than assmning that these sectors can be regarded as alterna- 

 tives to government investment in the water resources field. 



°" For a complete discussion of the methods employed in flood control benefit 

 estimation, see Eckstein, Water Resources Development, op. cit.. Chapter v. 



