The efficiency and equity of cost allocation methods for multipurpose water projects

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.