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(-) o 0:) c.u portant. In this case, the costs of salinity control are measured by the net cost to society per ton of salt removed; this may be defined as the farmers' plus the gov, ernment's COS1. It includes the cost of cap- ital improvements to irrigation systems, the value of labor saved by these invest- ments, and the net farm income forgone by changing cropping patterns or retiring cropland altogether. However,- the amount of taxes or subsidies is not counted, be- cause they are transfer payments that bal- ance out across the economy. Thus, two cost-sharing methods that have [he same net social costs may distribute them very differently between parties, For instance, subsidies to improve ir- rigation systems or payments for water conservation would cost the government far more than the net social cost. Farm income is. increased by these policies. In contrast, the charges on saJt or/for water required to induce lower salt discharges reduce farm income by more than the cost to society. In an extreme case, farms might be forced Out of business. This unintended hardship on Upper Basin farmers could be reduced by the use of increasing block rates, much as lifeline electricity rates allow the poor a minimum amount oflow-cost electricitv. Some basic am,?unt of water-say, 3 acre-feet per acre-could be sold at its distribution cost 'with a surcharge placed on consumption in excess of this amount. This significantly reduces the cost to farmers while retaining the economic incentive to lower salt loads. The equity or distributional problem highlights the value of flexible cost-shar- ing mechanisms, which can be adjusted to apportion costs in a variety of ways. ;)~~~ The "carrot-and-stick" approach is a good way to ensure flexibility in setting explicit cost shares. Tax and subsidy combina- tions may have higher administrative costs, but they may provide a fairer solution. Who should pay? Who should pay for controlling salinity in the Colorado? The three likely candidates are upstream farmers who add salt to [he river, downstream water users who are affected by water quality. and the gov- ernment. Maximum economic efficiency caUs for sharing costs in proportion to the benefits received; this is called the benefit principle. Defining the beneficiaries of sa- linity controL in turn depends on who holds the property right for waier quality, If it is held by the public, then polluters would be liable for salinity-control costs, From the EPA estimates cited earlier, all Upper Basin irrigators who contribute to salt load would be liable for 37 percent of total salinity-control costs. Most reservoir evaporation occurs for the benefic of the Lower Basin I suggesting that downstream irrigawrs and urban warer users should be liable for 12 percent of costs. A tax on water exported from rhe basin would cover the costs of controlling the 3 percent of salinity it causes, and municipal and in. dustrial water users would pay 1 percent. The federal government would pay the remaining 47 percent of costs, since most natural salt loading comes from publicly owned lands. On the other hand, if landowners have the right to pollute, then' salinity control costs sho.uld be shared among those who ,.':l\ '-"'-'?1} ~';".--~... ... suffer damages. Our research indicates that downstream irrigators would be willing to pay up to $3,95 per ton of salt removed. while municipal interests could collec- tively pay as much as $22,05 per ton, Up- per Basin farmers would pay only for la' bor savings and production increases resulting from the program, Under this property rights scenario, the federal gov- ernment would pay for benefits accruing to the nation as a whole. This might in- clude recreation, fish and wildlife bene- fits, and the value of meeting Our salinity agreements wit~ Mexico. We believe that some explicit share of the costs of salinity control should be paid by both upstream and downstream water users. Upstream irrigators who developed their lands long ago had no inkling that they some day would be liable for their contributions to the salinity of the river. Indeed, the federal government not only ~ncouraged but also often financed fur~ ther development of irrigated acreage. The recognition that some water-quality deg- radation is a natural consequence of ir- rigation should set this parameter as part of a defined water right, Thus. the liability of upstream irrigators for salt loading would be limited below the 37 percent figure, However, economic incentives should be. used to collect their cost share, while en. couraging reductions in salt discharges to the "natural" minimum. Downstream water users should bear responsibility for salinity resulcing from reservoir evaporation but, what is more important, they are in a position to reap large and tangible benefits from salinity control. Beneficiaries sharing the cost would further encourage some rational 12 'RESOURCES