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1The project was funded by the Wyoming Water Research Center (WWRC) at the University of Wyoming, Steven L. Gloss, Director.

2For a more detailed description of the evaluation process, see WWDC [1989].

3Within the government literature one only has to look to documents such as the extensive publications of the Water Resources Council. To a large extent the academic literature can be traced forward from the works of Eckstein [1958] and Maass et al. [1962].

4See White [1966] and Davis [1966] for similar arguments.

5A recent example in this regard is the Jacobs and Taylor [1989] effort which argues that the "income" approach is the only reasoned approach.

6We set aside for the moment the conceptual problems which remain at issue in terms of the structure of benefit-cost analyses (see Dasgupta and Pearce [1972], Chapter 1).

7The "game" which has evolved around the assignment of costs as reimbursable or nonreimbursable is seen in the following. Based on an analysis of 19 Bureau of Reclamation projects in the Upper Colorado and Upper Missouri River Basins, Franklin and Hageman [1984, p. 1048] show that benefit-cost, measures prepared for the purpose of justifying the construction of the projects included costs assigned as reimbursable to irrigated agriculture which amounted to 73.2 percent of total project costs. After the projects were completed, however, costs were reassigned from agriculture, leaving agriculture with reimbursable costs of but 3.8 percent of project costs.

8For the 19 projects studied. Franklin and Hageman show that ex ante benefit-cost analyses for these projects were based upon an allocation of O&M costs whereby 92 percent of such costs were to be reimbursable (69 percent of O&M costs reimbursable from the agricultural sector); 8 percent of O&M costs were to be non- reimbursable. After the projects were constructed, the Bureau of Reclamation reallocated O&M costs such that only 36 percent of O&M costs were to be reimbursable (only 6 percent of O&M costs reimbursable by the agricultural sector), with 64 percent of O&M costs then allocated as nonreimbursable (Franklin and Hageman [1984], p. 1049).

9A comprehensive discussion of the evolution of contemporary "welfare economics" is found in Bromley [1990]. Also, the potential Pareto improvement test (truth rule) requires that beneficiaries of a project could compensate losers from the project in question, and still be better off than they would have been without the project.

10The substance of such comprehensive analyses is nicely stated by Bromley: "To analyze something is not to reduce all of its components to dollar estimates of surplus, or to changes in net national income. While these measures may clearly be one part of a complete benefit-cost analysis, to analyze a proposed policy is to attempt to understand who the gainers and losers are, and how they regard their new situation in their own terms, and what this means for the full array of beneficial and harmful effects" (Bromley [1990], p. 21).

11Appendix F briefly addresses some of the problems of integration of monetary and non-monetary measures. Illustrations of the problem are given.

12We follow Howe [1971] and others for the remainder of Section 3.3.

13Gibbons [1986] and Jones et al. [1984] for details of how to properly estimate the demand for water.

14One would only use willingness to pay measures for Wyoming residents. For non-residents, expenditures and other multiplier effects are appropriate.

15The use of "real," inflation-free measures for benefits and costs implies the need to use "real," inflation-free discount rates.

16While most projects are evaluated for 50(and some for 100) year lives, in just the last 25 years (between 1960 and 1985) the Producer Price Index increased by 237 percent for farm products, while increasing by 295 percent and 422 percent for crude materials for construction and construction machinery, respectively (U.S. Department of Commerce [1978a], Tables 786, 793, 768, and 769). Thus, inflation rates for agricultural benefits (in the benefit/cost ratio's numerator have been substantially lower than the inflation rate relevant for future (for example) operation, maintenance, and rehabilitation (construction-related) costs in the benefit/cost denominator, implying the potential for the overestimation of net benefits when current prices for benefits and costs are used.

          (1910-14 = 100)
 1950          101                  1970          72                  
 1955           84                  1975          76                    
 1960           80                  1980          65                      
 1965           76                  1985          52                      

SOURCE:  U.S. Department of Commerce [1978a].  Table 1195;
              [1987b]. Table 1126.

18Farm output per acre has increased in the following manner for selected crops over the 1960-85 period: feed grains 193 percent; hay/forage 128 percent; food grains 183 percent (U.S. Department of Commerce [1987b]. Table 1138).

19Over the period 1970-1985, non-real estate (real estate) farm debt has increased by some 400 percent (348 percent) and median family income on farms (between 1975-85) has fallen by some 5 percent (U.S. Department of Commerce [1987b], Tables 1096 and 1112).

20An individual may hold IRA's yielding 8 percent while paying 16 percent for a car loan, reflecting the fear that, should he/she sell the IRA's to pay the car loan, he/she would fail to recoup the savings.

21The discount rate cannot vary by more than one-quarter percent in any one year.

22Typically, the average nominal yield on treasury debt with maturity between one year and the number of years in the life of the project under analysis.

24For example, an ex post study of employment effects associated with irrigation development in the Northern High Plains was recently conducted. The authors of this study report that their data ". . . fail to support the hypothesis that irrigation development is a major source of regional economic growth in the modern economy. The percentage changes in regional work forces (associated with irrigation development) would not, in fact, be large enough to be distinguished from changes associated with business cycles, or even from statistical 'noise' in employment data" (Mann et al. [1987], p. 1715). Similar conclusions are reported in Cicchetti, Smith and Carson [1975]; Fullerton et al. [1975]; Howe [1976]; Kelso, Martin and Mack [1973]; Stoevener and Kraynick [1979]; and Young [1984].

25Of the 800 questionnaires mailed, 164 were returned as undeliverable which is largely attributable to the fact that the most recent telephone books available were almost one year old.

26It could be argued that projects which put water to immediate beneficial use should receive a higher rating for "control" than projects which store water for future use. In our preliminary methodology, however, we have chosen to make that distinction in terms of efficiency benefits to avoid overcomplicating the approach. That is, projects which put water to immediate beneficial use will tend to have significantly higher benefit-cost ratios than projects which store water for future use, and thus be ranked higher in priority for construction. This issue will be addressed in more detail during our second year of research.

27Obviously the term ". . . a significant amount" is lacking in specificity. It is our intent to quantify such terms during our second study year by analyzing the range of impacts for historical projects and discussing the severity of such impacts with appropriate fish and wildlife experts.

28This section draws heavily on investigations previously conducted by the authors (Watts, Brookshire, Cummings [1989]).

29The investigators are aware of the fact that the survey respondents may not be representative of all Wyoming citizens. Rather, those more knowledgeable and more concerned about water development issues probably took the initiative to answer the questionnaire. Thus, it is assumed that the answers to the survey are representative of this group of Wyoming residents.

30Problems which may arise when the tributary aquifer extends over two or more states are described in (Burke et al. [1984]). The problems which the state can encounter if it fails to consider the diminished flow effects on streams are seen in the litigation between the states of Texas and New Mexico. New Mexico allowed extensive development of water use from groundwater in the Pecos River basin, beginning some 60 or 70 years ago. As has been determined by the Supreme Court, New Mexico's pumping from the tributary aquifer has reduced streamflows in the Pecos river by some 10,000 acre feet per year. The result is New Mexico's debt to Texas of about 300,000 acre feet of water, to compensate the state of Texas for shortages in New Mexico's compact deliveries of water to Texas over the last 30 years.

31As an example, non-federal water in the state of New Mexico trades at prices between $1,500 and $10,000 per acre foot, while, within the federally-established Elephant Butte Irrigation District, water can be exchanged between farmers at prices ranging between $200 and $500 per acre foot.

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