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Value of moving from central planning to a market system: lessons from the Israeli water sector

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  • Nir Becker

Abstract

This paper explores the implications of the transformation of the system of water resources allocation to the agricultural sector in Israel from a one in which allotments are allocated to the different users without any permission to trade with water rights. A mathematical planning model is used for the entire Israeli agricultural sector, in which an ‘optimal’ allocation of the water resources is found and compared to the existing one. The results of the model are used in order to gain insight into the shadow price of the different water bodies in Israel (about eight). These prices can then be used to grant property rights to the water users themselves in order to guarantee rational behavior of water use, since now one can sell their rights at the source itself. The implication is clear with regard to any possible movement towards a market system in any other sector. From the dual prices of the primal problem we can forecast the equilibrium prices and their implications for the different users. The central government does not have to interfere with the market mechanism because, as will be shown, every farmer has the option to sell his right or to use it. As participation in the market is voluntary, every farmer makes a decision that is both individually and socially rational. However, in moving from a central planning allocation to a market mechanism, the government has another task, which is to grant the property rights in order for the market to begin to evolve. It is not guaranteed that under any initial allocation a decentralization of the system will benefit all the regions but at least part of the problem is to be resolved between the regions themselves. As the results shows, there is a potential budgetary benefit of 28 million dollars when capital cost is not included and 64 million dollars when they are included.

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  • Nir Becker, 1995. "Value of moving from central planning to a market system: lessons from the Israeli water sector," Agricultural Economics, International Association of Agricultural Economists, vol. 12(1), pages 11-21, April.
    • Handle: RePEc:bla:agecon:v:12:y:1995:i:1:p:11-21
    DOI: 10.1111/j.1574-0862.1995.tb00347.x
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    1. Alan Randall, 1981. "Property Entitlements And Pricing Policies For A Maturing Water Economy," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 25(3), pages 195-220, December.
    2. Randall, Alan, 1981. "Property Entitlements And Pricing Policies For A Maturing Water Economy," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 25(3), pages 1-26, December.
    3. David Seckler & Robert A. Young, 1978. "Economic and Policy Implications of the 160-Acre Limitation in Federal Reclamation Law," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(4), pages 575-588.
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    1. Becker, N., 1999. "A comparative analysis of water price support versus drought compensation scheme," Agricultural Economics, Blackwell, vol. 21(1), pages 81-92, August.
    2. Reto Foellmi & Urs Meister, 2012. "Enhancing the Efficiency of Water Supply—Product Market Competition Versus Trade," Journal of Industry, Competition and Trade, Springer, vol. 12(3), pages 299-324, September.
    3. Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," Economic Research Papers 270633, University of Warwick - Department of Economics.
    4. Mehmet Kucukmehmetoglu, 2011. "Energy And Agricultural Policies Over The Transboundary Surface Water Resources," ERSA conference papers ersa11p1183, European Regional Science Association.
    5. Calatrava-Requena, Javier & Garrido, Alberto, 2003. "The Effects Of Spot Water Markets On The Economic Risk Derived From Variable Water Supply," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25885, International Association of Agricultural Economists.
    6. Arriaza Balmón, Manuel & Gomez-Limon, Jose A. & Upton, Martin, 1997. "Local water markets for irrigation in southern Spain: A multicriteria approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(1), pages 1-23.
    7. Mehmet Kucukmehmetoglu, 2009. "A Game Theoretic Approach to Assess the Impacts of Major Investments on Transboundary Water Resources: The Case of the Euphrates and Tigris," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(15), pages 3069-3099, December.
    8. Mehmet Kucukmehmetoglu & Jean-Michel Guldmann, 2004. "International Water Resources Allocation and Conflicts: The Case of the Euphrates and Tigris," Environment and Planning A, , vol. 36(5), pages 783-801, May.
    9. Qiuping Chen & Bo Ning & Yue Pan & Jinli Xiao, 2022. "Green finance and outward foreign direct investment: evidence from a quasi-natural experiment of green insurance in China," Asia Pacific Journal of Management, Springer, vol. 39(3), pages 899-924, September.
    10. Alan Murray & Patricia Gober & Luc Anselin & Sergio Rey & David Sampson & Paul Padegimas & Yin Liu, 2012. "Spatial Optimization Models for Water Supply Allocation," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(8), pages 2243-2257, June.
    11. M. Babel & A. Gupta & D. Nayak, 2005. "A Model for Optimal Allocation of Water to Competing Demands," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 19(6), pages 693-712, December.
    12. Yerushalmi, Erez, 2018. "Using Water Allocation in Israel as a Proxy for Imputing the Value of Agricultural Amenities," Ecological Economics, Elsevier, vol. 149(C), pages 12-20.
    13. John F. Raffensperger & Mark W. Milke & E. Grant Read, 2009. "A Deterministic Smart Market Model for Groundwater," Operations Research, INFORMS, vol. 57(6), pages 1333-1346, December.
    14. repec:ags:ubzefd:148054 is not listed on IDEAS

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