URBAN WATER SUPPLY: A SECOND LOOK,
RAND CORP SANTA MONICA CALIF
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The WATER SUPPLY volume discerned a consistent pattern of under-pricing and over-building. Rational reallocation of existing supplies, such as would occur if prices were raised in response to scarcity, is almost never even considered as an alternative to new construction. There are several reasons, aside from the electoral attractiveness of water projects. 1 Politically determined prices are inflexible. New York, for example, has not modified its price schedule since 1933. Of course, had the city attempted to do something about prices in the 1965 shortage they would have run into conflict with the CEA guide-lines. 2 A higher-order political rigidity makes it commonly impossible for one water jurisdiction to sell title or rights to another -- hence an incentive to rush into construction to nail down the supplies involved. 3 Certain errors in economic reasoning have played a role Ignorance of the marginal principle, double-counting of benefits, the use of inappropriately low discount rates, etc. But these analytical errors have had much less practical significance than what might be called the non-analytical error. This is the belief, usually quite unconscious, that there are needs or requirements for water rather than economic demands.
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