134 MULTIPLE PURPOSE RIVER DEVELOPMENT 



the opportunity cost of capital employed by the federal government 

 in current water resource development activities. We recognize 

 that federal funds are not likely to be raised by the government in 

 a competitive capital market, but rather by taxation. Approaching 

 the problem from this perspective, we derived an empirical esti- 

 mate of the opportunity cost of tax-raised federal funds under 

 realistic assumptions as to the structure of taxes which are likely 

 to be involved. This provided us with a social cost of public capital 

 which must enter into the benefit-cost efficiency criterion. 



We are now prepared to analyze the comparative efficiency of 

 alternative approaches to river basin development. In the next 

 three chapters, we shall analyze critically a few selected experiences 

 of recent decisions on water resources development within the 

 framework of analysis outlined in Chapters II, III, and IV. The 

 greatest difficulty in achieving efficient development is encountered 

 on the level of multiple purpose, integrated systems where the 

 problems of direct interdependence, indivisibility, and collective — 

 or nonmarketable — project services are encountered in their more 

 extreme forms. It is in these large multiple purpose opportunities 

 that the federal government has found the greatest need to partici- 

 pate actively. This participation has taken two forms: The federal 

 government, through one of its several water resource agencies, has 

 directly developed streams for multiple purpose objectives. It has 

 licensed others, consistent with provisions of the Federal Water 

 Power Act of 1920,^ to undertake such development. Although this 

 Federal Power Act was an instrument of public intervention, and 

 provided for preferential treatment for local public bodies in the 

 development of river sites,^ it did not require public development* 

 or prohibit development under private auspices if granted a license 

 by the Federal Power Commission. 



Under provisions of the Federal Power Act, development of the 

 nation's rivers can be undertaken by a number of approaches: from 

 the entire gamut of public development — federal, state, municipal, 



^ Prior to the Federal Water Power Act which established the Federal Power 

 Commission, nonfederal development was authorized by the Congress, subject to 

 the provisions of the General Dam Act and the Dam Act of 1906, and to the 

 approval of the Secretary of War and Chief of Engineers. 



^ Federal Water Power Act, Section 7 (a). 



* Except under special conditions in which development was reserved to the 

 federal government, ibid.. Section 7 (b). 



