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i})J33~ 19 "Use of a 7 percent discount rate for all water resource projects will result in continued authorization and construction of economically inefficient projects. This misallocation of federal money cannot be tolerated in the United States today with its critical needs for massive federal assistance in urban redevel- opment, inner-city education, health care, drug programs, en- vironmental protection, and so forth. "If income transfer to specific regions is desired it can be accomplished through other mechanisms more socially desirable than economically inefficient water resource projects." ***** "For these reasons, it is imperative for the Water Resources Council to follow the reasoning of Section IV D and recommend the 10 percent rate. This does not eliminate income transfer to deserving regions or to deserving poor people, it merely requires an explicit decision be made to subsidize a specific water resources project. " Stephen A. Marglin, Professor of Economics, Harvard University "I would like to say categorically that the standards and criteria proposed with respect to discounting are wrong in prin- ciple and likely to be wrong and detrimental in practice. They are even wrong in terms of the theory on which they are based; that is to say, their incorporation reflects a misunderstanding of the theory on which discounting and particularly its application to public investment is generally based. "I have serious quarrel with the theory. I think the theory is basically wrong, but even with respect to that theory, if you accept it. then I would argue that the application of it as reflected in these draft standards and criteria is incorrect. "Opportunity cost. . . as it is presented in the draft standards and criteria, as the appropriate criterion for dis- counting in the public sector, requires one of two equally unten- able assumptions: either that the economy is optimal in a sense that economists give to this term, and which I think nobody could