Introduction 



Previously we have been concerned with general considerations 

 basic to evaluating the economic efficiency of alternative courses of 

 action in actual cases involving water resource development. In 

 Chapter II, we outlined a theory of efficient resource allocation in 

 a perfectly competitive market ennomy, specifying the conditions 

 among all the decision-making units in the economy that would 

 have to be met in order to achieve efficient production and distri- 

 bution of the resulting output. We recognized, however, that the 

 attainment of efficiency goals theoretically obtainable within the 

 framework of a purely market economy is inhibited by certain 

 conditions in the actual economy. These departures from the com- 

 petitive model were elaborated in Chapter III, with special regard 

 to the provision of water-derived commodities and services. This 

 suggested that a perfectly competitive market economy would be 

 unable to satisfy group wants, or to make allowances for the 

 divergence between private and social marginal productivity of 

 resources where direct interdependence among production processes 

 short-circuited the market. Furthermore, the unadjusted competi- 

 tive model did not adequately cover the case where public budget- 

 ing, by collective choice, entered into the determination of the 

 actual allocation of resources. 



We were then compelled to tinker with the machinery of the 

 model to provide more appropriate criteria for evaluating economic 

 efficiency. The methods that can be employed for evaluating eco- 

 nomic benefits have been elaborated in other studies,^ and thus we 

 avoided dwelling on this aspect of the efficiency criteria. But such 

 studies have not undertaken a systematic empirical investigation of 



' For example, Otto Eckstein, Water Resources Development: The Economics 

 of Project Evaluation (Cambridge: Harvard University Press, 1958). 



133 



