Market Mechanics 75 



internal economies which would not be realized in the absence of 

 the project represent an economic gain attributable to the project. 

 Marketable project services, which represent only marginal addi- 

 tions to the supply in the relevant market areas, can be valued by 

 means of prevailing prices if such prices represent free market 

 results. If — through public policies such as supported or subsidized 

 prices, tariffs, import restrictions, etc. — the prevailing prices of sub- 

 stitutes for the project output do not mirror competitive equilib- 

 rium prices, appropriate adjustments to approximate equilibrium 

 prices are required in properly estimating project benefits. 



ESTIMATION OF COSTS 



While evaluation of benefits often poses difficult problems in 

 application, estimation of the costs of project construction is 

 relatively more straightforward, and often little different from 

 comparable estimation in the private sector. Markets exist for 

 factor services needed in building projects; thus, market rates of 

 hire for services and established prices for construction materials 

 and items of equipment are generally available — or obtainable 

 through estimation — by reference to relevant markets. In some 

 cases, a project might increase the demand for localized factor 

 services — for example, the increase in demand for workers might 

 be sufficient to affect the rates of hire in the local labor market. 

 Under such circumstances, costing the block of construction labor 

 input would be symmetrical with the case involving valuation of 

 the block of output discussed above. This is reqtiired, since the 

 opportunity cost of the total input would be less than the amount 

 obtained by costing all units of input at the level needed to attract 

 the final unit required for the scheduled rate of project construc- 

 tion. 3*5 Moreover, if pockets of local unemployment or under- 

 employment existed, the social cost of engaging otherwise idle 

 resources would be less than the industry-wide wage rate established 

 without reference to particular local labor supply conditions.^^ 



Estimating the social cost of capital services for the project, how- 

 ever, represents a somewhat different kind of problem. Because 

 only a part of the services of multiple purpose river projects are 



^"Ibid., Chapter 10. 



^' For an alternative suggestion with regard to treating this problem in a 

 practical situation, see Eckstein, Water Resources Development, op. cit., Chapter 

 II. 



