Files
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.