Some economic aspects of water resources development in western Canada

Abstract

The evaluation of public investment in water resources development has traditionally been carried out within the framework of benefit-cost analysis; a particular form of analysis, which has its roots in the efficiency-competitive theory of resource allocation. This thesis argues that, basically because of its competitive assumptions and its objective of maximizing net efficiency benefits, benefit-cost analysis, as it is currently applied at least, may not be the most appropriate criterion upon which to base public investment decisions. The broad outlines of water resources development in the future are more likely to be determined, as they have in the past, not solely by the desire to achieve an efficient allocation of resources but also by a more broadly based objective reflecting the widely held belief (whether true or not) that water is a dynamic influence in fostering both economic and social advancement. The Columbia River experience is discussed as a case in point. The final selection of projects under the Columbia River Treaty does not approximate the most efficient system of basin development. The choice of the Treaty projects, while they have in many cases been rationalized in terms of traditional economic techniques, can only be fully explained by the fact that neither of the parties to the Treaty had as their principle objective the maximization of net basin efficiency benefits. The Columbia River experience can best be understood through examination of the particular economic development policies of the parties involved. The thesis proposes and discusses an alternative approach to public investment criteria, the developmental approach, which, it is claimed, may be a more relevant way of evaluating future water resources development in Western Canada.