ABSTRACT.The failure to recognize the learning process in new technologies such as desalting may lead to incorrect water resource investment decisions for two reasons. First, to neglect cost reductions stemming from “learning by doing” implies an overestimation of desalting costs. Second, since learning in a particular plant may result in external (learning) benefits to other plants, these may serve as the basis for a subsidy intended to internalize such benefits. Accordingly, the research reported below includes an estimation of learning functions for desalting and the results of a formulation designed to measure external benefits on the basis of these learning functions. These results are then incorporated into a decision framework for water resource investments which recognizes uncertainty in determining optimal timing of desalting construct