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<br />use water owi" units and firm 2, OW', units. <br />The JOInt profit, 1T2 is the highest profit <br />that firms 1 and 2 can obtain under the water <br />quality restriction. <br /> <br />w <br />l\) <br />o <br />c..u <br /> <br />Policy Alternatives for <br />Water PollutIon Control <br /> <br />r <br />I <br /> <br />The above analysis indicates that <br />nleasures aimed at reducing the salt load <br />should be combined with water allocation <br />adjustments to reduce salinity levels down- <br />stream. Implementation of economic incentive <br />systems such as tax-subsidy schemes (Kneese <br />and Bower 1968, Baumol and Oats 1971) that <br />deal with only one of the two factors may not <br />be effective in this case. The needed <br />incentive system is one applicable to water <br />used and the amount of wastes discharged. <br />The optimal ratio of taxes or subsidies <br />(following Pigouvian tradition) to water use <br />and salt discharge is equal to the slope of <br />Wc We at D. The magnitude of the laxes and <br />the ratio must be determined iteratively. <br />Line WcWc needs to be derived through a water <br />quality model. <br /> <br />Further, if the supply of water is <br />inelastic for upstream users, tax on water <br />will not affect the consumption upstream. <br />Unless upstream-downstream water mobility is <br />permitted, the tax subsidy scheme will not <br />achieve the purpose of maintaining the <br />rrdesired" quality at least cost. The tax <br />revenue from water will simply be a part of <br />the rent accruing to the owner of water <br />rights; therefore, maintenance of water <br />quality will be achieved only through reduc- <br />tion in salt discharge. <br /> <br />Planning procedures are needed to <br />resolve the issue. It is well recognized <br />that water quality should be treated as a <br />basin-wide problem for salinity control <br />purposes. Yet, the relationships between <br />institutions involved with water allocation <br />decisions and those with water quality <br />management are not clearly defined and their <br />act ivities are certainly not integrated. <br />Consequently, water resource development is <br />likely to proceed independently of salinity <br />considerations. The need for coordination of <br />state water rights and water resources <br />divisions with EPA and state health divisions <br />is clear. Further, concerted efforts by <br />these organizations to make future decisions <br />based on basin-wide economic planning models <br />are needed. <br /> <br />Aside from efforts to reduce salinity <br />concentration through reduced upstream water <br />use and reduced salt loading from human ac- <br />tivities, the role of natural salt contribu- <br />tion to the river system (which is estimated <br />at about 60 percent in the Colorado River) <br />must be examined. Salinity control through <br />economic incentives will fail in this area <br />since alternatives to remove natural salt <br />inflows are public goods. Consequently, if <br /> <br />the costs associated with reducing loadin~s <br />from natural salt sources are lower than the <br />other options, efforts to incorporate these <br />possibilities in the planning procedure <br />deserve attention. Indeed, such plans are <br />being pursued by the Bureau of Reclamation <br />under Section 206 of Title II of the Colorado <br />River Basin Salinity Control Program Act (pt <br />93-320). The effect of individual structural <br />.alternatives has been analyzed through <br />simulation models (U.S. Department of the <br />Interior 1977) in a cost-effectiveness <br />framework. <br /> <br />Optimal Water Quality Level <br /> <br />To date, these three alternatives (con- <br />trol of salt loading from human activities, <br />control of natural salt loading, and reduc- <br />t ions in water use) have not been evaluated <br />in a comprehensive analytical framework to <br />determine the combination that would maintain <br />salinity levels downstream at least cost. <br />The economic criteria for achieving any <br />"desired" water quality level downstream <br />dictate that the level of each salinity <br />control technique should be so chosen that <br />the quality improvement ach ievable by <br />expending an additional dollar for each <br />control measure be the same. This condition <br />will yield the cost-minimizing combination of <br />techniques. <br /> <br />The analysis simultaneously needs to <br />determine the level of salinity that is <br />economically optimal. In Figure 2, the curve <br />sloping downward to the right (MB) represents <br />the marginal benefits to downstream users as <br />a function of improvement in water quality. <br />The area under the curve is the total benefit <br />resulting from the water quality improvement. <br />The shape of the curve indicates that bene- <br />fits increase at a decreasing rate as salin- <br />i ty levels are reduced. Curve MC represents <br />the marginal cost of improving salinity. It <br />is the slope of the minimum total cost of <br /> <br />Me' <br /> <br />MB,MC <br /> <br /> <br />Me <br /> <br /> I <br />R I <br /> I <br />0 I MB <br /> I <br /> I <br /> 0' 0- <br /> WATER QUALITY <br />Figure 2, Optimal water quality level. <br /> <br />5 <br />