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The efficiency and equity of cost allocation methods for multipurpose water projects
Author(s) -
Loughlin James C.
Publication year - 1977
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/wr013i001p00008
Subject(s) - equity (law) , economics , microeconomics , actuarial science , public economics , business , environmental economics , law , political science
The efficiency and equity of the separable costs‐remaining benefits (SCRB), alternative justifiable expenditure, and use of facilities methods of cost allocation are examined. On efficiency grounds, only the SCRB formula satisfied all three efficiency criteria. From an equity viewpoint, no one method allocates costs so that each purpose shares fairly in the savings from multiple‐purpose development. The source of inequity with the SCRB and alternative justifiable expenditure methods arises because either separable costs or specific costs are subtracted from justifiable costs on a 1:1 basis. Conceptual problems in defining capacity preclude the use of facilities method from satisfying the equity objective. An adjustment in the SCRB method is proposed which will enable this procedure to satisfy both efficiency and equity criteria.