ABSTRACT
The objective of this chapter is to delineate, in broad terms, the ways in which unregulated market results with respect to water pollution fails to coincide with the requirements of an ideally functioning market system. The benefitcost analysis of public water resources projects, proceeds on the basis that prices in private markets generally register social values, but the market mechanism cannot function adequately to produce optimum water resources development. Social cost is imposed and resource allocation is distorted by the fact that market processes tend to generate inefficient combinations of water treatment, sewage treatment, and other abatement devices. and welfare maximization. Technical interdependency and common services destroy full equivalence between individual and social welfare maximization. Social decision concerning public water supply standards have the effect of constraining or limiting the cost minimization objective of the hypothetical basin-wide firm and altering the character of its optimal waste-disposal system.
