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.

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.

In this work we examine how economic growth affects public debt when interacted with reelection prospects. Reelection considerations shorten political time horizons and give rise to political myopia that exacerbates debt accumulation. That laxer institutional reelection restrictions (e.g., no term limits) mitigate this effect due to electoral accountability is well known. Incorporating growth, we find that this mitigation can be reversed because less myopic, and more accountable, incumbents put more emphasis on smoothing the effects of growth across generations. We test these predictions using an annual-based panel of U.S. states over the period 1963–2010. Our identification strategy rests on constitutionally-entrenched differences in gubernatorial term limits that provide plausibly exogenous variation in reelection prospects, and aggregate national TFP shocks that are exogenous to individual states. Our estimates indicate that when reelection is possible a one standard deviation positive income shock induces, within the same year, a relative increase of approximately $40 in real per capita public debt.

Violent political conflict has been documented to have comprehensive adverse effects on economic activity and, thus, substantially harm social welfare. As conflict escalations are often reported to fragment economic space, we suggest an empirical framework which allows for estimating changes in the size of markets often split by frontlines. This approach uses a differentiated goods oligopoly model to separate effects of conflict intensity on consumer demand, costs of trade, market size, and market structure. We combine daily sales of apples in Hebron - one of the focal points of the Israeli–Palestinian conflict - and variables quantifying complementary aspects of conflict intensity. Conflict is found to suppress demand and affect competition more significantly than it increases costs of trading. Simulations indicate a 15% reduction in total daily consumption during conflict of high intensity while a pacification would yield a 20% welfare gain. This empirical framework allows disentangling the effects of conflict on food markets. The results suggest that relief policies should consider alleviating effects of fragmentation of economic space, e.g., by ensuring humanitarian corridors.

Abstract Applied economists have investigated individual adoption choices as well as diffusion (aggregate adoption). The emphasis, however, has been on adopters' behavior and risk associated with production and markets. Marketing also considers broader aspects and marketers develop tools to address risk related to the fit of a product, its performance, and its reliability. This paper expands the economic literature on adoption by analyzing and assessing the implications of the choice of marketing tools, like money-back guarantees, demonstrations, and others, by marketers. The analysis is based on the threshold model of diffusion, which recognizes heterogeneity and dynamics. We provide evidence and examples from agriculture.

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.

This paper examines the transmission of human capital from parents to children using variation in parental influence due to parental death, divorce, and the increasing specialization of parental roles in larger families. All three sources of variation yield strikingly similar patterns that show that the strong parent-child correlation in human capital is largely causal. In each case, the parent-child correlation in education is stronger with the parent who spends more time with the child and weaker with the parent who spends relatively less time parenting. These findings help us understand why educated parents spend more time with their children.

Can monetary policy shocks induce redistribution across natural resource rich and poor states within a federation? We conjecture that resource-rich states are capital intensive, hence their investment is more responsive to changes in monetary policy. Consequently, contractionary monetary policy shocks (e.g., increases in the interest rate) may induce redistribution from resource-poor states to resource-rich ones, via an equalizing federal transfer scheme, because investment is reduced more strongly in the latter. We test these hypotheses using a panel of U.S. states covering several decades, and find that: (1) resource-rich states are significantly and persistently more capital intensive; (2) contractionary monetary policy shocks induce a relative drop (increase) in investment (federal transfers) in resource-rich states, over the course of four years; (3) these patterns are driven by resource-induced differences in the capital share in the economy. We estimate that a one standard deviation contractionary monetary shock induces, within the first year, federal redistribution of approximately $$\$2.5$$$2.5 billion from the resource-poor to the resource-rich states, representing about $$11\%$$11% of the total average annual federal transfers received by the latter states.

Can natural resource windfalls increase public debt in democracies? Adopting a political economy perspective, we show that the answer is in the affirmative. Resource windfalls increase both the government’s income and wealth. The former mitigates the need to borrow, whereas the latter encourages further borrowing (as it improves its terms), implying an ambiguous pure effect of resource windfalls on debt. Re-election considerations shorten political time horizons and give rise to political myopia. We show that higher political myopia, induced by more stringent (institutional) re-election restrictions, magnifies the wealth effect, turning positive the effect of resource windfalls on debt. We test the model’s predictions using a panel of U.S. states over the period 1963-2007. Our identification strategy rests on constitutionally-entrenched differences in gubernatorial term limits that provide plausibly exogenous variation in re-election prospects, and geographically-based cross-state differences in natural endowments. Our baseline estimates indicate that a resource windfall of $1 induces an increase of approximately ¢20 in the public debt of states with more stringent re-election restrictions.

Abstract The use of sellers' personal photographs online is ubiquitous in sharing economy platforms such as Airbnb. This paper addresses two questions. First, what type of personal photos do hosts choose to post on Airbnb? Second, which of the characteristics of their photos affects their perceived trustworthiness? We answer these questions by building a structural equation model of the relation between the characteristics of the photos and the perceived trustworthiness of the hosts. The antecedents of trust in this model were defined based on insights from psychology regarding first impressions. We found that the hosts' visual characteristics (e.g., gender) as revealed in their online photographs affect their perceived trustworthiness both directly and indirectly via attractiveness. We also found that image characteristics, which are not related directly to the traits of the host in the picture (e.g., photograph quality), play a significant role in trust inference. Interestingly, the hosts' choices of their personal photos suggest that they may not be aware of these effects.