Friday, January 9, 2015

Report of Panel of Consultants on Secondary or Indirect Benefits of Water-Use Projects, Part III

Introduction to Part III of the panel of consultants' report:

Part III of the consultants' report, "Some principles, and some of their consequences," runs to nearly 10,000 words and, in effect, "buries the lede." Section eleven, the last section, states in its underlined, topic sentence:
"Qualitative factors would become increasingly important in proportion as computations of quantitative secondary benefits might be scaled down in the ways here suggested and might become dominantly important."
Indeed, the gist of the entire report may be summed up as that there is only a limited case for quantitative estimates. I have taken the liberty of editing the following "executive summary" of the panel's main argument:
We believe in the importance of secondary benefits, but find them so ramifying, involved and conjectural that the attempt to compute them as a national total, in dollar terms, by the methods of the Manual or any other methods that appear at present available, cannot properly be regarded as "measurement," though computations of pertinent items may be useful as guides to judgment in rating the importance of these benefits. 
Accordingly, we are able to "set forth a recommended basis for the evaluation of secondary benefits and costs" as directed in instruction (2) only on the assumption that "evaluation" can include, for important parts of these benefits and costs, ratings by the exercise of judgment which are not precise enough to justify regarding them as quantitative measurement.
This being the nature of our judgment, we are hardly in a position to recommend an alternative formula purporting to measure these secondary benefits. The inescapable difficulty, even for the quantitative differences, is that, for the ramifying secondary effects, accurate and definitive answers require omniscience. 
Democracy has to rely on technicians in matters inscrutable to the non-specialist, but preferably where the specialist is following a well-authenticated technique. In this case, the disagreements among the specialists are evidence that they do not possess such an authenticated technique, for the results of which a representative government can safely take their word. It needs to be able to tell what they are doing, and what their procedures mean. 
As to qualitative and intangible benefits and costs, our study has led us to look toward diminished reliance on quantitative computation and toward attaching greater relative importance to qualitative effects of the alterations in distribution of population, types of community, etc. We therefore suggest that these matters are worth increased attention and study, including sociological aspects. These are, of course, matters that can be described and appraised only by judgment.
By contrast, the thrust of Budget Circular A-47 was to mandate a quantitative formula that effectively excluded consideration of those "ramifying, involved and conjectural" secondary benefits "[u]ntil standards and procedures for measuring secondary benefits are approved by the Bureau of the Budget." Until when? Until never! The panel of consultants had concluded that evaluation of secondary benefits could not be "precise enough to justify regarding them as quantitative measurement."

Below is a summary of the eleven principles presented in Part III of the consultants report. The Scribd file that follows contains the full text of Part III:
1. Demand for the product is a prerequisite condition. 
2. Quantitative or tangible benefits constitute total differences in national real income, with and without the project. 
3. Increased national real income however caused, can be embodied in three and only three forms. 
4. For an increase of national real income, both increased supply and increased demand are necessary, and full national computations of the two should not be added.  
5. In a national with-and-without comparison, dollar-costs are important only insofar as they usefully represent the foregoing of primary and saleable products (for which their creator could collect a price) from alternative resource-uses that would otherwise have been made. 
6. The "stemming-from" hypothesis, crediting production of raw products with acting as a "trigger" and causing the chain of subsequent processes, has limited validity which does not warrant carrying the computation through to the ultimate consumer in all cases. 
7. One important effect of a successful project may be to raise the marginal productivity of resources in the economy or avoid a reduction but we know no present means of reducing this to calculation, beyond what is already represented in primary benefits. 
8. Allowance for calling unused resources into use needs different treatment for original investment and for subsequent operation. 
9. Local gains need not all be regarded as mere transfers, cancelling out from the national point of view. 
10. Determination of the proper scope of projects should be governed by the principle of equal productivities of marginal increments. 
11. Qualitative factors would become increasingly important in proportion as computations of quantitative secondary benefits might be scaled down in the ways here suggested and might become dominantly important.

Below are links to Parts I and II of the report:

Part IA. Instructions of Michael W. Straus, Commissioner, Bureau of Reclamation, to Panel of Consultants on Secondary or Indirect Benefits

Part IB. Summary Response to the Commissioner's Instructions

Part IIA. Conclusions and Recommendations: Introduction

Part IIB Conclusions and Recommendations: Summary of Principal Recommendations

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