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

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 al...

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Bibliographic Details
Published in:The American economic review 1935-06, Vol.25 (2), p.224-235
Main Author: Gray, Horace M.
Format: Article
Language:English
Subjects:
Accounting
Capital costs
Cost allocation
Cost control
Electric power
Electricity
Electricity distribution
Flood control
Hydroelectric plants
Hydroelectric power
Industrial economics
Navigation
Social policy
Studies
Utilities costs
Water resources
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Summary: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.
ISSN:0002-8282
1944-7981