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<br />003116 <br /> <br />The New York courts have taken a broad view of the interests that <br />may be compensable under this provision. 50 <br /> <br />V. ECONOMIC ANALYSIS OF AREA-OF-ORIGIN PROTECTION <br />SCHEMES <br /> <br />This section presents an economic analysis of the issue of area-of- <br />origin protection. It begins with a consideration of the rationales for <br />protection and then presents two conditions which must be met for a <br />transbasin diversion to be economically desirable: (I) it must be the <br />least-cost source of reliable water supply to the prospective user; and <br />(2) its benefits must exceed all related costs. Forms of protection are <br />then considered. Compensation paid by exporters to the area of origin <br />is seen to playa particularly important role. The section ends with a <br />set of general economic guidelines for designing compensation <br />schemes. <br /> <br />A. Why Protect Areas of Origin? <br /> <br />The primary reason for protecting areas of origin is to deal equi- <br />tably with those areas during periods of economic and demographic <br />change. Water, perhaps more than any other natural resource, is <br />thought of as a natural and necessary part of the environment that, to <br />some extent, should not be denied to the area of origin even in the <br />interests of the larger society. <br />Yet there are important economic reasons why it might be desira- <br />ble to provide particular types of protection when water exports are <br />being considered. These reasons relate to the economic efficiency of <br />water use throughout the region in which the area of origin is located. <br />Economic efficiency is concerned with maximizing the total value <br />of the output of goods and services produced through water use: agri- <br />cultural outputs, forestry products and services, instream uses for fish- <br />eries and water quality, municipal water and waste disposal services, <br />etc. Achieving this maximum total value requires that the allocation <br />of available water among uses and locations be kept flexible over time <br />to respond to changing demands and values. <br />The conditions for an economically efficient pattern of water use <br />can be expressed by saying that the value of the marginal product of <br />water (VMP) in each use and each location should differ not more <br />than the cost of physically transporting the water among uses and lo- <br />cations. That is: YMP;I ::::: YMPjl; for all i,j,l, and k where i and j <br />stand for uses, and I and k indicate locations. <br /> <br />SO. Id. <br />