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The Department of Environmental Economics and Management

The Robert H. Smith Faculty
of Agriculture, Food and Environment
The Hebrew University of Jerusalem

Herzl 229, Rehovot 7610001
Fax: 08-9466267

Department Head:
Dr. Ohad Raveh, Tel: 08-9489373

Head of the teaching program:
Dr. Ohad Raveh, Tel: 08-9489373

Miri Arazi, Tel: 08-9489230


Bar-Nahum, Z. ; Reznik, A. ; Finkelshtain, I. ; Kan, I. Centralized water management under lobbying: Economic analysis of desalination in Israel. Ecological Economics 2022, 193, 107320. Publisher's VersionAbstract
This paper studies the impact of lobbying on policies in a centrally managed water economy. First, we develop an optimal control model in which long-run water-management policies are an outcome of negotiation between policymakers and a politically organized farming sector. We show that under equilibrium conditions in the political game, larger political power of the farmers' lobby leads to faster exhaustion of naturally replenished water resources, and expedites the investment in water-supply backstop technologies such as desalination. Then, we employ a detailed hydro-economic model of Israel's water economy to assess the validity of claims by scientists and bureaucrats that lobbying by the local agricultural sector has contributed to the depletion of the country's natural freshwater resources and thus accelerated the development of seawater desalination. Specifically, we compare observed trajectories of water-management policies in the years 2000–2020 to their simulated counterparts, and find a better fit for simulated scenarios that involve lobbying than for a socially optimal one; this result prevails under simulated conditions of extreme water shortage due to faster population growth or lower recharge of natural water sources. The best-fitted political-equilibrium scenarios indicate considerable deadweight loss. We discuss potential causes of over- and undervaluation of the lobbying effect.
Slater, Y. ; Finkelshtain, I. ; Reznik, A. ; Kan, I. Large-Scale Desalination and the External Impact on Irrigation-Water Salinity: Economic Analysis for the Case of Israel. Water Resources Research 2020, 56, e2019WR025657. Publisher's VersionAbstract
Abstract Recent agroeconomic studies in water-scarce countries such as Spain, Australia, Saudi Arabia, and Israel have revealed the economic viability of irrigating high-value crops with desalinated water. However, the worldwide growth of large-scale desalination capacities is primarily designed to resolve urban-water scarcity, disregarding the impact of desalination on irrigation-water salinity. We develop a dynamic hydroeconomic programming model where infrastructure capacities and allocations of water quantities and salinities in a regional water distribution network are endogenous. We show that subsidizing desalination is socially warranted because the associated reduction in irrigation-water salinity is an external effect of water consumption by all water users. Empirical application to the entire state of Israel indicates that large-scale desalination of seawater and treated wastewater for irrigation is optimal. This result stems from the large share of irrigation-intensive salinity-sensitive high-value crops, motivated by Israel's policies to support local agriculture. Ignoring salinity results in a 45% reduction in desalinated irrigation water, a 29% reduction in farming profits, a 250% increase in water suppliers' profits, and an average deadweight loss of \$1,200 a year per hectare of arable land.
Finkelshtain, I. ; Kan, I. ; Rapaport-Rom, M. Substitutability of Freshwater and Non-Freshwater Sources in Irrigation: an Econometric Analysis. American Journal of Agricultural Economics 2020, 102, 1105-1134. Publisher's VersionAbstract
Population growth is increasing the scarcity of freshwater for irrigation and accelerating its replacement with non-freshwater sources such as treated wastewater and brackish water. Although these substitutes may be less productive agronomically, their supply is usually more stable. We develop a structural econometric framework to assess the substitution between fresh- and non-fresh water as it is inferred from water-use decisions of farmers under increasing block-rate water pricing. We employ the model to village-level panel data from Israel, in which 50% of the freshwater allotments were replaced during the 1990–2010 period by treated-wastewater quotas, using a non-freshwater/freshwater volumetric exchange rate of 1.2. Based on our estimation results, the hypothesis that the marginal rate of substitution between the two water sources is equal to one cannot be rejected. Simulations suggest that the Israeli quota-exchange policy has increased both agricultural production value and farming profits.
Zelingher, R. ; Ghermandi, A. ; De Cian, E. ; Mistry, M. ; Kan, I. Economic Impacts of Climate Change on Vegetative Agriculture Markets in Israel. Environmental and Resource Economics 2019. Publisher's VersionAbstract
We integrate the combined agricultural production effects of forecasted changes in CO2, temperature and precipitation into a multi-regional, country-wide partial equilibrium positive mathematical programming model. By conducting a meta-analysis of 2103 experimental observations from 259 agronomic studies we estimate production functions relating yields to CO2 concentration and temperature for 55 crops. We apply the model to simulate climate change in Israel based on 15 agricultural production regions. Downscaled projections for CO2 concentration, temperature and precipitation were derived from three general circulation models and four representative concentration pathways, showing temperature increase and precipitation decline throughout most of the county during the future periods 2041–2060 and 2061–2080. Given the constrained regional freshwater and non-freshwater quotas, farmers will adapt by partial abandonment of agriculture lands, increasing focus on crops grown in controlled environments at the expense of open-field and rain-fed crops. Both agricultural production and prices decline, leading to reduced agricultural revenues; nevertheless, production costs reduce at a larger extent such that farming profits increase. As total consumer surplus also augments, overall social welfare rises. We find that this outcome is reversed if the positive fertilization effects of increased CO2 concentrations are overlooked.
Galkin, E. ; Dalal, A. ; Evenko, A. ; Fridman, E. ; Kan, I. ; Wallach, R. ; Moshelion, M. Risk-management strategies and transpiration rates of wild barley in uncertain environments. Physiol Plant 2018, 164, 412-428.Abstract
Regulation of the rate of transpiration is an important part of plants' adaptation to uncertain environments. Stomatal closure is the most common response to severe drought. By closing their stomata, plants reduce transpiration to better their odds of survival under dry conditions. Under mild to moderate drought conditions, there are several possible transpiration patterns that balance the risk of lost productivity with the risk of water loss. Here, we hypothesize that plant ecotypes that have evolved in environments characterized by unstable patterns of precipitation will display a wider range of patterns of transpiration regulation along with other quantitative physiological traits (QPTs), compared to ecotypes from less variable environments. We examined five accessions of wild barley (Hordeum vulgare ssp. spontaneum) from different locations in Israel (the B1K collection) with annual rainfall levels ranging from 100 to 900 mm, along with one domesticated line (cv. Morex). We measured several QPTs and morphological traits of these accessions under well-irrigated conditions, under drought stress and during recovery from drought. Our results revealed a correlation between precipitation-certainty conditions and QPT plasticity. Specifically, accessions from stable environments (very wet or very dry locations) were found to take greater risks in their water-balance regulation than accessions from areas in which rainfall is less predictable. Notably, less risk-taking genotypes recovered more quickly than more risk-taking ones once irrigation was resumed. We discuss the relationships between environment, polymorphism, physiological plasticity and fitness, and suggest a general risk-taking model in which transpiration-rate plasticity is negatively correlated with population polymorphism.
Raviv, O. ; Broitman, D. ; Ayalon, O. ; Kan, I. A regional optimization model for waste-to-energy generation using agricultural vegetative residuals. Waste Management 2018, 73, 546 - 555. Publisher's VersionAbstract
The spatial distribution of vegetative agricultural residuals (VAR) implies that any waste treatment system (WTS) designed to manage VAR is particularly sensitive to transportation costs. Additionally, a wide range of treatment technologies is potentially available for VAR treatment, but some of them lack a well-developed market for their output products. This study develops a method to design an economically feasible VAR treatment system, analyzing the profitability of the system as a function of logistics and uncertain market prices of the available treatment technologies' products. The design method includes an economic optimization model followed by a sensitivity analysis of the potential changes in the system’s profitability. The results show that the market price of the treatment technologies' products has a larger impact on the system’s profitability than transportation costs. Specifically, if biochar prices reach the level forecasted by experts, pyrolysis will become the dominant technology of the WTS. The research highlights the importance of the treatment technology selection and the location of treatment facilities in the design of an optimal WTS for VAR.
Broitman, D. ; Raviv, O. ; Ayalon, O. ; Kan, I. Designing an agricultural vegetative waste-management system under uncertain prices of treatment-technology output products. Waste Management 2018, 75, 37 - 43. Publisher's VersionAbstract
Setting up a sustainable agricultural vegetative waste-management system is a challenging investment task, particularly when markets for output products of waste-treatment technologies are not well established. We conduct an economic analysis of possible investments in treatment technologies of agricultural vegetative waste, while accounting for fluctuating output prices. Under a risk-neutral approach, we find the range of output-product prices within which each considered technology becomes most profitable, using average final prices as the exclusive factor. Under a risk-averse perspective, we rank the treatment technologies based on their computed certainty-equivalent profits as functions of the coefficient of variation of the technologies’ output prices. We find the ranking of treatment technologies based on average prices to be robust to output-price fluctuations provided that the coefficient of variation of the output prices is below about 0.4, that is, approximately twice as high as that of well-established recycled-material markets such as glass, paper and plastic. We discuss some policy implications that arise from our analysis regarding vegetative waste management and its associated risks.
Reznik, A. ; Feinerman, E. ; Finkelshtain, I. ; Fisher, F. ; Huber-Lee, A. ; Joyce, B. ; Kan, I. Economic implications of agricultural reuse of treated wastewater in Israel: A statewide long-term perspective. Ecological Economics 2017, 135, 222 - 233. Publisher's VersionAbstract
We develop an Israeli version of the Multi-Year Water Allocation System (MYWAS) mathematical programming model to conduct statewide, long-term analyses of three topics associated with agricultural reuse of wastewater. We find that: (1) enabling agricultural irrigation with treated wastewater significantly reduces the optimal capacity levels of seawater and brackish-water desalination over the simulated 3-decade period, and increases Israel's welfare by 3.3 billion USD in terms of present values; (2) a policy requiring desalination of treated wastewater pre-agricultural reuse, as a method to prevent long-run damage to the soil and groundwater, reduces welfare by 2.7 billion USD; hence, such a policy is warranted only if the avoided damages exceed this welfare loss; (3) desalination of treated wastewater in order to increase freshwater availability for agricultural irrigation is not optimal, since the costs overwhelm the generated agricultural benefits. We also find the results associated with these three topics to be sensitive to the natural recharge of Israel's freshwater aquifers, and to the rate at which domestic-water demand evolves due to population and income growth.
Kan, I. Editorial — Special Issue on Economics of Salinity Impacts and Management. Water Economics and Policy 2016, 02, 1602001. Publisher's Version
Baum, Z. ; Palatnik, R. R. ; Kan, I. ; Rapaport-Rom, M. Economic Impacts of Water Scarcity Under Diverse Water Salinities. Water Economics and Policy 2016, 02, 1550013. Publisher's VersionAbstract
Exploitation of alternative water sources is expected to grow in the decades to come in water-stressed countries with fast population growth, especially in regions where a further decline of natural freshwater availability is expected due to climate change. Increasing utilization of non-freshwater usually leads to salinity build-up in fields and water sources as well as accumulation of various pollutants — both having a considerable impact on the suitability of non-freshwater for irrigation due to constraints associated with crop salinity tolerance and food safety regulations. We developed a linked Computable General Equilibrium (CGE) — farm-level model of a water economy with representation for multiple water types characterized by different qualities. We employ the model to assess the impact of water shortage on the Israeli economy, where steadily growing water scarcity leads to an increasing utilization of alternative water sources. We simulate water shortage scenarios based on the Long Term National Master Plan for The Water Economy developed by the Israeli Water Authority (IWA). The linked CGE — farm-level model provides a mechanism for estimating the Constant Elasticity of Substitution (CES) rates between different irrigation water types used in agriculture. This mechanism accounts for the effects of salinity on yields and takes into consideration food safety regulations for irrigating crops with treated wastewater. We demonstrate that, in contrast to previous studies, CES rates between different water types are not identical. The CES rates obtained in our study have relatively low values, which can be attributed to the constraints associated with crop salinity tolerance and food safety regulations. Our results reveal that water shortage can lead to a significant decline of Israel’s GDP, where a considerable part of the decline is attributed to the decrease in agricultural outputs. The magnitude of the impact depends on the underlying assumptions regarding future desalination capacity. To further study the effect of desalination, we run simulations under various desalination levels and examine its impact on the GDP. We also examine the extent to which the impact of water shortage is sensitive to CES rates between different irrigation water types.
Reznik, A. ; Feinerman, E. ; Finkelshtain, I. ; Kan, I. ; Fisher, F. ; Huber-Lee, A. ; Joyce, B. The Cost of Covering Costs: A Nationwide Model for Water Pricing. Water Economics and Policy 2016, 02, 1650024. Publisher's VersionAbstract
This study offers a high-resolution model of nationwide water supply. The model is sufficiently detailed to represent all main water sources in an economy, the principal segments of the conveyance system, urban, industrial and agricultural demand regions, and various water types, including fresh, saline and recycled. Calibrated for Israeli 2010 data, we find that the optimal extraction of fresh water is only 2% larger than the total observed supply from those sources. However, for some specific sources, the deviation between optimal and observed quantities is significant. Assuming average constant recharge, the optimal aggregated desalination is 57% of the 2010 desalination capacity and only 33% of the present desalination capacity. Even with an assumed 40% decline in recharge (for example, due to climate change), the model uses only 50% of the present desalination capacity. This may suggest that the construction of desalination facilities in Israel, which began in 2005, could have been delayed. The model establishes a comprehensive system of pumping levies and user fees that support the optimal allocation. However, due to considerable scale economies, the average cost is almost 50% larger than the marginal cost. The implications are that the welfare cost of the recent Israeli Balanced Budget Water Economy legislation is more than 100 million USD per year, about 10% of the water economy share of the GDP.