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<br />00J331 <br /> <br />20 <br /> <br />seriously maintain about the American economy, with respect to <br />such issues as the distribution of income, the performance of <br />various units. the relationship between private goods and public <br />goods, and a whole host of dimensions. <br /> <br />"The other assumption that would justify the opportunity <br />cost principle equally untenable in my view, is that the alterna- <br />tives with which public investment is implicitly being compared, <br />either in the private sector or public sector itself. have identical <br />time profiles so that in effect the discounting question really <br />becomes of a very secondary nature. And if you want to maintain <br />that, then it seems to me it is up to you to demonstrate that that <br />is the fact of the case, that the time profiles of the alternative <br />investments with which a particular water project or any other <br />project is being compared implicitly or explicitly are in fact <br />identical. and then, as I say, it seems to me you can justify the <br />opportunity cost principle. <br /> <br />"Now, I would suggest that the correct procedure is to use <br />a combination of a social rate of discount, a rate of discount which <br />reflects the political and public aspects of inve stment that is made <br />by a government on behalf of all of the people. a social rate of <br />discount coupled with an opportunity cost concept, but one which <br />is used as a measure of a price. of the value of capital resources <br />being devoted to water and therefore taken away from other sectors <br />entering as a price not as a rate of discount. You reevaluate the <br />capital costs in terms of what is called technically sometimes an <br />accounting price of investment or accounting price of capital, but <br />inter -temporal comparisons are made in terms of the social rate <br />of discount. II <br /> <br />~:~***~:-: <br /> <br />"So the first issue then and the first point then I would like <br />to emphasize to you is that the opportunity cost principle as <br />enunciated in the document is wrong in terms of the theory on <br />which it is itself based, and likely to bias projects in the wrong <br />direction if applied in practice. " <br /> <br />*::{~:::~~:::* <br /> <br />"The second point, or the next point I think I would like to <br />emphasize to you, or is important to emphasize, builds upon the <br />