The adaptation of input-output models for normative (benefit-cost) appraisal of state or regional water plans is discussed. The economic surplus approach is taken to be appropriate for regional, as well as for national program appraisals. A conceptual framework, based on a willingness to pay concept, is developed to provide a formula for estimating direct economic benefits of state water development plans from input-output models. Key elements of the formula are the costs (including opportunity costs) of primary resources utilized by water users particularly capital, labor, management, and land. A number of influential empirical studies are shown to incorrectly account for opportunity costs facing water users in producing sectors, thereby reporting erroneously high measures of economic benefits.
INTRODUCTIONEstimating the value of water is important and controversial, particularly in arid regions where water is scarce and largely allocated. Public perception of the value of water in its various uses influences decisions that commit major financial resources to water development projects. The scarcity of both water and taxpayers' capital make it critical that water resource investments are properly evaluated. This paper concerns the measurement of economic welfare with input-output models as an aid to state water investment and program appraisal. Our review of the issue is prompted by what we perceive to be inappropriately large differences in measurement techniques among various analyses in the published literature. In particular, we will show that the conceptual underpinnings of several estimates of the "value of water" which are derived from regional input-output models impart a substantial upward bias to benefit estimates. The number of studies critiqued is relatively small. However, due to the readiness of interest groups and political decision makers to take an optimistic view of the economic importance of water, they have had a disproportionate influence in the public debate on water policy. Until now, most planning of large-scale water projects in the United States has been performed by federal agencies under criteria laid down in a series of standardized procedural manuals (the 1950 "Green Book," the 1952 Bureau of the Budget Circular A-47, U.S. Bureau of the Budget [1952], and in 1962, Senate Document 97, U.S. Congress [1962], were the first of these. They were followed by the U.S. Water Resources Council's [1973, 1979, 1983] "Principles and Standards" in 1973, "Procedures" in 1979, and "Guidelines" in 1983).The federal planning procedures generally evolved along with the development of the applied welfare economics literature. The original impetus to systematic evaluation of federal water projects has been traced to the declaration in the Flood Control Act of 1936 that "the benefits, to whomsoever they may accrue" of federal projects should exceed the costs. Following World War II, the application of welfare economics principles to appraisal of water projects began to receive attention from applied welf...
This paper is an expository note in which it is demonstrated that conventional input-output multipliers based upon the Leontief matrix may provide misleading information concerning the relative importance of the processing sectors within a regional economy. An alternative technique is presented in which economic multipliers are based upon percentage changes in sales to final demand.Evidence that size variation among economic sectors prevents meaningful comparisons of multipliers is shown using the Colorado InputOutput Model. A comparison between several types of conventional employment multipliers and growth equalized multipliers is used to indicate the magnitude of the effects of non-equal sector size.
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