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


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  • Becker, Nir


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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Bibliographic Info

Article provided by Blackwell in its journal Agricultural Economics.

Volume (Year): 12 (1995)
Issue (Month): 1 (April)
Pages: 11-21

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Handle: RePEc:eee:agecon:v:12:y:1995:i:1:p:11-21

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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(03), December.
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Cited by:
  1. M. Babel & A. Gupta & D. Nayak, 2005. "A Model for Optimal Allocation of Water to Competing Demands," Water Resources Management, Springer, vol. 19(6), pages 693-712, December.
  2. Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," The Warwick Economics Research Paper Series (TWERPS) 992, University of Warwick, Department of Economics.
  3. Foellmi, Reto & Meister, Urs, 2011. "Enhancing the Efficiency of Water Supply – Product Market Competition versus Trade," CEPR Discussion Papers 8423, C.E.P.R. Discussion Papers.
  4. repec:ags:ubzefd:148054 is not listed on IDEAS
  5. Mehmet Kucukmehmetoglu, 2011. "Energy And Agricultural Policies Over The Transboundary Surface Water Resources," ERSA conference papers ersa11p1183, European Regional Science Association.
  6. 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.
  7. Arriaza Balmon, Manuel & Gomez-Limon, Jose A. & Upton, Martin, 2002. "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), March.
  8. 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, Springer, vol. 26(8), pages 2243-2257, June.
  9. 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, Springer, vol. 23(15), pages 3069-3099, December.


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