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The Allocation of Joint Costs in Multiple-Purpose Hydro-Electric Projects

Horace M. Gray
The American Economic Review
Vol. 25, No. 2 (Jun., 1935), pp. 224-235
Stable URL: http://www.jstor.org/stable/1802428
Page Count: 12
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The Allocation of Joint Costs in Multiple-Purpose Hydro-Electric Projects
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Abstract

Public development of the water resources of drainage basins for flood control, navigation, electric power and other useful purposes raises the question as to how the joint costs are to be allocated among the several complementary utilities. The non-vendible character of certain utilities renders allocation by reference to a free market impossible. The intangible nature of certain benefits, the generality of their incidence and the probability that their relative values may change considerably over the life of the project make it difficult to allocate joint costs on the assessment principle. No objective formula is possible; joint costs must be allocated by reference to social policy. The logic of the situation supports a policy of charging all, or at least a large part, of the joint costs to the general public revenue in the sameway as other social services. Electric power produced by such projects tends to be priced on a by-product basis. Existing private electric companies, which derive their sole support from the sale of electricity, cannot meet this competition.

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