Using Water Allocation in Israel as a Proxy for Imputing the Value of Agricultural Amenities

This paper uses the water allocation economy in Israel as a proxy for imputing the value of agricultural amenities. A general equilibrium model is developed, and incorporates agricultural amenities as byproducts of agricultural production, water trade channels, and multiple water types. The premise is that until a decade ago, water policy in Israel was interlinked with agricultural land-use policy. Integrating a Monte-Carlo analysis, the model searches for a baseline minimum value of agricultural amenity that makes household, in the counterfactual scenario, indifferent between the administrative and market mechanisms. The minimum imputed value is around 109% agricultural output. The intuition is that the gains in economic welfare, from improved water use efficiency, are offset by the losses in social welfare due to a reduction in available agricultural amenities.