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<br />AREA-OF-ORIGrN PROTECTION
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<br />How C:In sucn equality or marginal ,alut be esrablished'~ One
<br />method would be by central authonty. sucn as:I srate ongmeer or state
<br />wator resources department. However, orlicient central allocation of
<br />:Ill water supplies would require an unobtainablo amount of informa-
<br />Clon and objectivity. and it would be comrary to the economic and
<br />political philosophy of those who value the freedom of the individual
<br />to make most economic decisions.
<br />An alternative to central direction is to permit water to be allo-
<br />c:lted through markel processes. or market-like processes. in whIch
<br />proposals made by pnvate water users are pennirted. subject to some
<br />degree of social review. But if markets are to result in efficient alloca-
<br />!tons of water (as defined above), prospective water users must be
<br />aware of and responsible for all costs associated with their proposed
<br />water uses, (They presumably know the benefits accruing from the
<br />proposed water use. although some public benefits might be created
<br />that would be ignored by the user.)
<br />The main ~conomjc j<;sne relatine: [0 area-or-origin protection
<br />within a market setting like the Western United States, is. therefore.
<br />whether or not there are costs to the area of origin that are likelv to be
<br />ignored by J prospective exporter of water. As we WIll see. there are
<br />costs that almosl surelv w,Hdd rye i2nored,
<br />Wilhin a market setting. the most direct way of inSUrIng that pro-
<br />spective water users will take such coses into account is to develop
<br />some way of estimating the COStS and requiring the exporter actually
<br />to compensate the area of origin through monetary or other forms of
<br />payment. The remainder of our discussion will therefore concentrate
<br />on the quantification and methods of payment of compensation to ar-
<br />eas of origin,
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<br />B, Economical(y Efficient Transbasln Diversions
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<br />We start by considering the conditions that must exist if an out-
<br />of-basin transfer project is to be considered economically desirable.
<br />Three conditions are required: (I) the transfer must be the least-cost
<br />alternative for providing that quantity of water (of comparable relia-
<br />bility) to the users: (2) the beneiits to Ihe users of the transferred water
<br />must exceed. (a) losses to the area of origin (including downstream
<br />basins to which it may be tributary): plus (b) transfer-related construc-
<br />tion and operation co,ts: and (3) 110 ane should be made worse-olf by
<br />the proJec!." Although these conditions seem self'evident, they re-
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