The Willamette River Case: Costs 211 



theoretical prerequisites for the competitive model are not realized. 

 Market institutions, although sophisticated and in large measure 

 comprehensive, still do not permit all of our economic wants to be 

 satisfied individualistically through market choices. Various instru- 

 ments of group decisions and collective choice enter the resource 

 allocation process. Thus, public bodies of various kinds are organ- 

 ized to assist in meeting the requirements of our society. Laws, 

 customs, and traditions governing these intergovernmental relations 

 emerge. And there is no particular reason to believe that the prac- 

 tices — for example, those imbedded in the doctrine of intergovern- 

 mental tax immunity — are consciously inspired by the economists' 

 conception of efficiency. It is more appropriate to our interests 

 here, however, to seek some understanding of the income redistribu- 

 tion resulting from differences in accounting costs which arise from 

 different means of undertaking the same development, and from 

 different tax policies and traditions implicit in those means. 



Distribution of Costs by Income Classes 



The differences in annual costs of operating basically the same 

 set of physical facilities will be reflected in the rates charged to 

 power consumers. It is here that the redistributive effects of these 

 alternative approaches to development of reimbursable project 

 features begin to appear. 



As a first consideration, we must recognize that power customers 

 will pay the costs of the development if rates on power provide 

 revenues equal to the costs, and if the accounting costs thus met are 

 equal to the true social costs. 



Beginning with the case of federal development, we must consider 

 the problem in terms of our findings on social costs. In Chapter IV, 

 we concluded that unless the level of total (rather than hydro- 

 electric only) investment is raised by collective choice to the point 

 where all investment opportunities promising returns over 2.5 per 

 cent are exhausted, a rate of return of only 2.5 per cent for water 



rates and taxes, will approximate only a half of the average for the private 

 electric utility industry. These differences are readily accountable for by 

 inherently different physical and locational characteristics of the TVA system. 

 See Distributors of TVA Power, 1953 Annual Report, prepared by the Tennessee 

 Valley Authority, November 1953, pp. 12-13. 



