Friday, March 1, 2013

Desalination in California

Out in Maryland, it seems kind of silly to worry about water. In California, though, it's another matter entirely: one community is spending $1 billion to build a plant to convert seawater into potable water. Is it worth it? How will the benefits and the costs stack up?

It's tough to weigh with water projects because the costs aren't paid at the same time that benefits are. Once you build a dam, you get water diverted from the river at basically no cost for a very long time. It's just those startup costs that are a kicker! In this case, they can't just balance marginal cost and marginal revenue, because the curves aren't straight lines: marginal cost is zero for a long time and then, BOOM! It's through the roof. So government officials who choose to invest in these projects just have to guess what the cost of water is going to be in the future. Is it worth it? Time will tell....

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