Abstract
A river basin authority seeking to maximize the economic value of a river's pollutant disposal and water quality services may limit pollutant discharges and/or increase the river's waste assimilative capacity. Pricing pollutant disposal induces disposers to recognize the opportunity cost of this service, or the value of downstream water quality foregone at the margin. The income from pollution charges can also reimburse the authority for the cost of capacity augmentation. There is some evidence that optimal pollutant charges would yield less than the cost of an optimal level of artificial aeration because of mild scale economics. Low flow augmentation, similarly optimized, should earn a surplus because of both diminishing marginal product and eventual increasing cost of reservoir storage.
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