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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

PO Box 12, Rehovot 76100
Fax: 08-9466267

Department Head:
Prof. Ayal Kimhi, Tel: 08-9489376

Head of the teaching program:

Dr. Iddo Kan, Tel: 08-9489233

Miri Arazi, Tel: 08-9489230

Optimal water pricing: Accounting for environmental externalities


Tsur, Y. Optimal water pricing: Accounting for environmental externalities. Ecological Economics Forthcoming, 170, 106429.


A pricing-based mechanism that implements the optimal water policy while accounting for environmental externalities is developed. The analysis is presented in the context of a comprehensive water economy, stressing the tradeoffs between water use in the provision of ecosystem services vs. other uses. A distinction is made between conveyed and instream environmental water, which turns out to have important policy implications. It is shown that the allocation of instream water can be implemented by properly incorporating the (marginal) instream value of water within the shadow (in situ) price of natural water. The regulation of conveyed environmental water requires a quota-price combination. An example based on Israel's water economy is presented.

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Last updated on 06/18/2020