Measuring Water Quality Benefits: An Introduction

Benefit-cost analysis in the United States has evolved into a practical method for measuring the worth of public spending programs.* While most discussions usually identify the Flood Control Act of 1936 as the origin of benefit-cost analysis of Federal programs, the report of Thomas Jefferson’s Treasury Secretary on proposals to improve waterways provides some evidence of its application over a century earlier.† Nonetheless, the Flood Control Act marks a milestone because it required that the benefits from water resource development projects must exceed the costs. The Act establishes a legal basis for using the benefit-cost criterion in evaluating water projects. By stating that the benefits and costs must be measured “to whomsoever they may accrue,” the Act applies the Kaldor-Hicks compensation principle before it had been formally stated in the literature (Kaldor [1939] and Hicks [1940]).‡