92 MULTIPLE PURPOSE RIVER DEVELOPMENT 



allocation of expenditures over time, and particularly with regard 

 to their decisions on how much to consume and how much to 

 invest. It has been widely contended that consumers' sovereignty 

 should be rejected for intertemporal choices because of the myopia 

 of individuals,^ which leads to inadequate amounts of saving and 

 investment for society as a whole from a long-run point of view. 

 It has also been contended that it is not the function of govern- 

 ment slavishly to follow individual desires, but to act for unborn 

 generations, to take the lead in providing for the future. 



We do not reject these considerations and shall return to them 

 later in this chapter. In some instances, they will be reflected in 

 the higher social criteria which may supersede the efficiency criteria 

 as we have defined them. But, throughout this study, we take the 

 view that economic efficiency is one of the significant criteria and 

 that it requires measurement of gains and costs in terms of the sub- 

 jective valuations of the individuals who constitute our society. In 

 the case of the cost of capital, we also look to individual prefer- 

 ences, and it is on this basis that we proceed. 



Model A: A Tax Cut Stimulating Consumption 



Our first tax model estimating the social cost of capital consists 

 of reductions which are particularly favorable to low-income 

 families. In Model A, 80 per cent of the tax cut is in the form 

 of an increase in the personal exemption of the federal income tax. 

 The other 20 per cent is assumed to go into a reduction of those 

 federal excises which would, in fact, be most likely to take place. 

 When our computations for each of these tax cuts are completed 

 and the results combined, we arrive at the following applicable 

 interest rates: 



" M. Dobb, On Economic Theory and Socialism (New York: International 

 Publishers, 1955), pp. 38-41, 73-77, 244-45, and 258-60; A. C. Pigou. The Eco- 

 nomics of Welfare (4th ed.; London: Macmillan Company, 1932), pp. 22-30; 

 W. J. Baumol, Welfare Economics and the Theory of the State (Cambridge: 

 Harvard University Press, 1952), pp. 91-92; and R. H. Strotz, "Myopia and 

 Inconsistency in Dynamic Utility Maximization," Review of Economic Studies, 

 1955-6, pp. 165-180. 



