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considered transfer payments among members of the economy. They do not affect project efficiency and are disregarded in economic eff1c1ency ana1ys1s of ::: pub11c 1nvestments (Mishan :70). ..... N Suh~frti2fng TrrigATinn Tmprr\va"u::I;"+C:. The U.S. Congress has authorized the Soil Conservat10n Serv1ce to subsid1ze on-farm 1rr1gat10n system 1mprovements. Th1s approach can be evaluated by vary1ng the proport10n of annual 1rr1gat10n system improvement cap1ta1 costs paid by the farmer and the federal government. The percentage of capital costs paid by the government was parametr1cally 1ncreased from zero to 90" in l~ increments. The resulting effects on salt discharge, water use, and net income are displayed in part A of table 2. The va 1 ue of labor and water saved must exceed the farmer's share of system 1mprovement costs before a change in farming practices would occur. Farm net 1ncome thus increases with every change, and the government incurs a correspond1ng increase in program costs. The subsidy approach is l1mited because the economic 1ncentive is not aimed d1rect1y at reducing salt d1scharges. The subsidy encourages capital 1nvestment to save water (and labor), wh1ch ind1rect1y reduces salt loads. Th1s linkage means a loss of effect1veness because water and labor conservat10n do not correlate exactly with reducing salt d1scharges. Further, the subsidy approach, as presently being implemented, only encourages capital-Intensive approaches to salinity control, thus creating a bias against labor-intensive methods. A HVDothetica1 Tax on Salt D1scharoes. An effluent tax on salt discharges is the most allocative1y eff1cient approach. However s1nce the salt is embod1ed in nonp01nt irr1gation return flows, measurement problems would occur and monitoring the actual salt discharge from each field or estimat1ng average 11