choose to pretreat its waste, decrease its water use, improve intersectoral nature of electricity and the conflicts over the housekeeping, change either the production process or potential uses of the water between users. In addition, the products, or it can choose to pay the effluent fee. The pricing of the output from multipurpose water resources industrial charges are typicaUy related to the quantity of projectsthatincludehydropowerneedscarefulreappraisal. water used and the "strength" of the effluent measured in The temptation is to load adisproportionate amount of the terms ofthe oxygen-demanding organic waste load (BOD) cost recovery on the electricity consuners and not on the and total suspended solids. These charges can give an agriculturalandotherusersofthejointoutputoftheproject. incentive to industries to change the amounts and strength oftheirsewage effluents.Hudson'sstudyoffivelarge cities The Bank's Policy Paper should help develop ex(Atlanta, Chicago, Dallas, Salem (Oregon),and South San plicit guidelines for dealing with these issues, particularly Francisco) and 101 industries found that effluent charges the environmental and social impacts discussed above, in were overwhelmingly preferred by the industrialists to its own operations and to encourage the governments dischargehimitations.Therewasauniversalattemptbythe receiving funds to recognize them as potential problems. industries in the sample to respond to the effluent fees despite theirrelatively small costs to the industries. Hudson concluded that; "...we are confident that economic incentivesworkwell and canbe effectively administered." In its Policy Paper the Bank should stress the application of well REFERENCES established economic principles and innovative technical approaches in this area. Baumol,W.J. andW. E. _Oates.Economics,Environmental_

- Baumol,W.J. andW. E. _Oates.Economics,Environmental Policy, and the Quality ofLife._ Prentice-Hall, 1979.

# _4.2.4 Rural Water Supply and Sanitation_

- Brown, S. 3. and D. S. Sibley. _The Theory ofPublic Utility Pricing._ Cambridge University Press, 1986.

This one problem area could easily consume the entire Bank lending portfolio and still not be completely Sanitation Decade, but in percentage terms the population covered remains similar to that at the beginning of the Decade. More effort is needed on the social and economic

- _Guidelines for_

- _ProjectEvaluation._ United Nations Industial Development Organization, 1972.

side of this issue, and Bank-sponsored research on **assess-** Desvouges, W. H. and V. Kerry Smith. _Benefit-Cost As-_ ing willingness-to-pay for rual water supply should be _sessmentfor Water Programs,_ Volume I. Prepared for extended to sanitation. As in the issue discussed in section the U.S. Environmental Protection Agency, Research 4.2.3., too much of the discussion focuses upon the costs Triangle Institute, North Carolina, 1983. and too little on the benefits. In addition, there is aneed for research on appropriate incentive schemes to encourage Dorfman, R., and N. Dorfinan. _Economics of the Environ-_ individual or private sector undertakings to provide goods _ment._ W.W. Norton, 1972. and services in rural water supply and sanitation.

- _sessmentfor Water Programs,_ Volume I. Prepared for the U.S. Environmental Protection Agency, Research Triangle Institute, North Carolina, 1983.

- _Economics of the Environ-_

- _ment._ W.W. Norton, 1972.

- Coase, R. "The Problem of Social Cost." _The Journal of Law and Economics,_ October, 1960.

The Bank has played a major role in the Water and SanitationDecade and itwould be appropriate to include in its Policy Paper a critical review of the accomplishments Eckstein, 0. and problems with respect to this entire set of activities.

- _Water Resource Development and the Eco-_

- _nomicsofProjectEvaluation._ HarvardUniversity, 1958.

# _4.2.5 Hydropower_

HydropowerisamnajorareaofBank fundingandone that until recently was considered well defined and not ceived a lot of criticism based upon their environmental impacts. The Bank's environental guidelines have already begun to address these issues and should make sure that govenmnentsreceiving the fumds are equally as carefil issues that need clarification in the hydro area relate to the

- Falkenburg, M., M. Gam, and R Cestti. "Water Resources: A Call for New Ways of Thinking." World Bank, INUWS Working Paper, March, 1990.

- WaterQuality," inV. KerrySmith, _editor,Advancesin Applied Micro-Economics,_ Volume 3. JAI Press Inc., 1984.

- Some Reflections on Water Conservation Possibili-

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