212 MULTIPLE PURPOSE RIVER DEVELOPMENT 



resources development involved some unmet opportunity costs.^^ 

 In fact, given the probable way in which federal funds would be 

 raised, the incidence of the tax on different income classes and 

 productive enterprise sectors, and the time preference or rates of 

 return earned by investments made by these individuals or enter- 

 prises, a more realistic social cost of the investment funds, we 

 found, would approximate 5 to 6 per cent. 



In Table 38, however, an imputed interest rate of 2.5 per cent 

 was used, consistent with federal practices. This might suggest 

 an element of subsidy close to 3 per cent, or a shifting of costs to 

 that extent from power customers to others; but this view is not 

 tenable, for several reasons. 



The 5.5 per cent in our computation has been coupled for pur- 

 poses of project evaluation with an amortization period of a 

 hundred years. That is, we have argued that it is not meaningful 

 to discount benefits from water development projects completely 

 after fifty years; therefore, the higher discount factor (5.5 per cent) 

 used in combination with a longer amortization schedule more 

 accurately reflects the real economic costs.^^ In Table 38, however, 

 the accounting costs shown (for interest and amortization, and 

 undistributed profits added to surplus) include an annual sum 

 equivalent to 4.5 per cent coupled with an amortization schedule 

 of fifty years. The difference between an imputed rate of 5.5 per 

 cent employing a 100-year amortization schedule (annual charges 

 of $55,261 per million of invested capital) and 4.5 per cent with a 

 fifty-year amortization schedule (annual charges of $50,602 per 

 million of invested capital) ^* amounts to only 0.446 per cent on 

 the investment. In absolute terms, annual charges for the federal 

 operation would fall short of those necessary to cover opportunity 

 costs by only about $144,000 on an investment totaling $23.6 



" In Chapter III, however, we pointed out how in the case of decreasing-cost 

 industries, financial returns insufficient to cover full costs need not imply an 

 inefficient investment. However, we are not concerned here with the problem 

 of efficiency, but rather with the redistributive consequences of alternative 

 policies. 



" See Otto Eckstein, Water Resources Development: The Economics of Proj- 

 ect Evaluation (Cambridge: Harvard University Press, 1958), Chapter iv. 



" Consult any standard set of financial tables — for example, Justin H. Moore, 

 Handbook of Financial Mathematics (New York: Prentice-Hall, Inc., 1947). 

 Table viii, annuity which $1.00 will buy. 



