Irrigation production functions with water-capital substitution

The dynamics of biomass growth implies that the yield of irrigated crops depends, in addition to the total amount of water applied, on irrigation scheduling during the growing period. Advanced irrigation technologies relax constraints on irrigation rates and timing, allowing us to better adjust irrigation scheduling to the varying needs of the plants along the growing period. Irrigation production functions, then, should include capital (or expenditures on irrigation equipment) in addition to aggregate water. We derive such functions and study their water-capital substitution properties. Implications for water demand and adoption of irrigation technologies are investigated. A numerical example illustrates these properties.     

Preparing for catastrophic climate change

We study optimal adaptation to climate change when the harmful consequences of global warming are associated with uncertain occurrence of abrupt changes. The adaptation policy entails the accumulation of a particular sort of capital that will eliminate or reduce the catastrophic damage of an abrupt climate change when (and if) it occurs. The occurrence date is uncertain. The policy problem involves balancing the tradeoffs between the (certain) investment cost prior to occurrence and the benefit (in reduced damage) that will be realized after the (uncertain) occurrence date. For stationary economies the optimal adaptation capital converges monotonically to a steady state. In most cases, investment begins immediately. However, if the initial adaptation capital exceeds a pre-specified threshold level, which lies above the optimal steady state, investment is delayed while the capital stock decreases (due to depreciation) and commences only when it reaches this threshold level. For growing economies the optimal adaptation capital stock approaches the maximal economic level above which further accumulation is ineffective.     

Measuring the Recreational Value of Open Space

We develop aggregate measures of the recreational value of types of open space when data on individual site visitation are not available. Our procedure accounts for both the allocation (between the different types of open space) and participation (total number of trips) decisions. The procedure is applied to estimate the recreational value of three types of open spaces (beaches, urban parks and national parks) in Israel.     

Immigration,Capital Flows and Housing Prices

Research on immigration and real estate has found that immigrants lower house prices in immigrant destination neighborhoods. In this article, we find that this latter result is not globally true. Rather, we show that immigrants can raise neighborhood house prices, at least in the case of the wealthy immigrants that we study. We exploit a surprise suspension and subsequent closure of a popular investor immigration program in Canada to use a difference‐in‐differences methodology comparing wealthy immigrant destination census tracts to nondestination tracts. We find that the unexpected suspension of the program had a negative impact on house prices of 1.7–2.6% in the neighborhoods and market segments most favored by the investor immigrants. This leads to an approximate lower bound on the effect of capital inflows of 5%.     

Perennial crops under stochastic water supply

Perennial crops require substantial initial investment in groundwork and planting, as well as a multiyear gestation period without commercial yield. Therefore, a crop's cycle (from planting to felling) should be long enough in order to cover the fixed cost and become profitable. The problem becomes involved when the cycle's duration is stochastic due to occurrence of uncertain event that terminates the cycle prematurely. Studying orchard management under stochastic drought events, we show that to each perennial crop that is profitable without drought hazard, there exists a critical drought hazard above which the crop turns loss making. We refer to this critical drought hazard as the crop's drought vulnerability index and show that it increases with the length of the gestation period, the ratio of fixed cost to average annual profit and the interest rate, and decreases with the natural (uninterrupted) cycle length. We then investigate the economic value of a stable water source, such as recycled water, that stabilizes the water supply and diminishes the drought hazard. An empirical application in northern Israel reveals that the stabilization value of recycled water due to its role in eliminating the drought hazard far exceeds its supply cost.     

Endogenous Discounting and Climate Policy

Under risk of abrupt climate change, the occurrence hazard is added to the social discount rate. As a result, the social discount rate (1) increases and (2) turns endogenous to the global warming policy. The second effect bears profound policy implications that are magnified by economic growth. In particular, we find that greenhouse gases (GHG) emission should be terminated at a finite time so that the ensuing occurrence risk will vanish in the long run. Due to the public bad nature of the catastrophic risk, the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions. In the long term, the GHG emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions.     

Agricultural Landscape Value and Irrigation Water Policy

Water is a limiting factor of agricultural production in an increasing number of regions. There is also ample empirical evidence to suggest that the economic value of agricultural landscape is substantial, which has been used to justify agricultural support programs in developed economies. We investigate the link between the environmental amenity of agricultural landscape and the value of water in crop production. We find that the environmental externality gives rise to a social derived demand for water which differs from the market‐based (private) derived demand for water. Policy implications regarding irrigation water allocation and pricing are drawn. An empirical example illustrates the methodology and main findings.     

Steady state properties of multi‐state economic models

A simple method to derive optimal steady states of multi‐state dynamic economic systems with minimal assumptions on the underlying processes is developed. This is accomplished by an n‐dimensional function defined over the n‐dimensional state space in terms of the model's primitives. The location and stability properties of optimal steady state candidates are characterized by the roots and derivatives of this function. A resource management example illustrates the simplicity and applicability of the method.     

R&D policies for desalination technologies

In many arid and semi‐arid regions whether or not to desalinate seawater has long been a non‐issue and policy debates are focused on the timing and extent of the desalination activities. We analyze how water scarcity and demand structure, on the one hand, and cost reduction via R&D programs, on the other hand, affect the desirable development of desalination technologies and the time profiles of fresh and desalinated water supplies. We show that the optimal R&D policy is of a non‐standard most rapid approach path (NSMRAP) type, under which the state of desalination technology — the accumulated learning from R&D efforts — should approach a pre‐specified target process as rapidly as possible and proceed along it thereafter. The NSMRAP property enables a complete characterization of the optimal water policy. The renewable nature of the fresh water stock permits a non‐monotonic behavior of the optimal stock process: under certain conditions, the stock is depleted, to be fully or partly) refilled at a later date.