The Cost of Covering Costs: A Nationwide Model for Water Pricing

A. Reznik, E. Feinerman, I. Finkelshtain (), Iddo Kan (), F. Fisher, A. Huber-Lee and B. Joyce
Additional contact information
A. Reznik: Department of Environmental Economics and Management, The Hebrew University of Jerusalem, Jerusalem, PO Box 12, Rehovot 76100, Isreal
E. Feinerman: Department of Environmental Economics and Management, The Hebrew University of Jerusalem, Jerusalem, PO Box 12, Rehovot 76100, Isreal
I. Finkelshtain: Department of Environmental Economics and Management, The Hebrew University of Jerusalem, Jerusalem, PO Box 12, Rehovot 76100, Isreal
F. Fisher: #x2020;Department of Economics, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, MA 02142-1347, USA
A. Huber-Lee: #x2021;Stockholm Environment Institute, 11 Curtis Ave., Somerville, MA 02144-1224, USA
B. Joyce: #x2021;Stockholm Environment Institute, 11 Curtis Ave., Somerville, MA 02144-1224, USA

Water Economics and Policy (WEP), 2016, vol. 02, issue 04, 1-39

Abstract: 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.

Keywords: Natural resources; water economy; model; pricing (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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DOI: 10.1142/S2382624X16500247

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