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I I I I I I I I I I I I I I I I I I I - .. ~ ... '" 1".' '\. ;) ~~ ~1_;.. $. ..-. ~ Conceptually, the cost elements in a benefit-cost analysis are appropriately measured in terms of opportunity costs. Economists define the opportunity cost of a resource as its value in its second best use. The WRC Guidelines implicitly assume that market prices are a better surrogate for these opportunity costs than subsidized (government controlled) prices for production inputs. The Guidelines provide for an exception to the use of market prices for production inputs in the case of construction labor for irrigation projects. In situations where there are high levels of unemployment, the Guidelines allow the assumption that a certain percentage of construction employment will come from the ranks of the unemployed. Since the second best use of an unemployed worker may not exist, the analyst is allowed to assign a zero (opportunity) cost to such employment. The Guidelines specifically state that the amount of construction labor that can be assigned a zero cost must be based upon a survey of the availability of unemployed labor in the region, and a comparison of this labor with projected skill requirements that will be needed to construct the project. The Guidelines do not allow assignment of a zero opportunity cost for on-farm labor or operation and maintenance (O&M) labor after the construction of the project is complete. This restriction is based upon the assumption that over the life of an irrigation project (50 to 100 years), most labor resources could find some alternative employment, and thus their opportunity cost would not be zero. 2.4 Discounting Discounting is an analytical tool used to compare the dollar value of g .b _ '"