| Abstract: | ABSTRACT: Federal spending on water resource development projects exceeds $10 billion annually. This paper examines the economic theory and practice on which the Federal water resource development plans are based. Existing theoretical and applied problems result in overinvestment. These include 1) no standard of value for the tradeoff of environmental objectives with economic objectives; 2) benefits based on “willingness to pay,” but beneficiaries pay only a fraction of a project's costs; 3) beneficiaries “shop around” among program purposes in order to reduce their commitments; and 4) benefit/cost (B/C) analyses are based on a discount rate, which is consistently below the Federal borrowing rate. Furthermore, the Government Accounting Office (GAO) frequently finds that the agency regulations are inadequate and result in inconsistent and questionable benefit computations. The President has proposed a series of water policy reforms, to reduce some of the apparent overinvestment in water resource development, but fundmental corrective action rests with the members of Congress. |
