Yakir Plessner

Recycled Effluent: Should the Polluter Pay?

A coastal city can either dispose of recycled effluent by dumping it in the sea, or transfer it to farmers in its hinterland for irrigation. Who should bear the cost of recycling? Three alternatives are employed: a central planner who maximizes the combined utility of city and farmers; regulation by prices, for which purpose we develop the citys supply function;and a bargaining framework for the allocation of costs. The main conclusions are that “the polluter pays” rule cannot be justified in principle and that bargaining may result in inefficiency. We demonstrate with an example from Israel that essentially conforms to the theoretical structure. Copyright 2001, Oxford University Press.

An Applicable Model of Optimal Marketing Policy

This paper presents a marketing model designed to find the revenue-maximizing allocation of a set of interrelated products over space and time, when demand, represented by a relation in which price at time t is a function of quantities in the same period, involves lagged prices. The technique used is the discrete maximum principle and it is proved that the solution derived using this technique is optimal. The method of application is discussed, as well as some computational aspects, and some of the results of the actual application are reviewed.

Computing Equilibrium Solutions for Imperfectly Competitive Markets

In most theoretical as well as empirical studies the conditions of free competition are assumed, and thus conclusions are subject to competitive behavior. In the real world, however, noncompetitive structures are quite common and deserve not less but, from several viewpoints, more attention than competitive ones. Assuming a linear demand system and constant returns to scale and using quadratic programming, it is shown how partial market equilibria for various leading firm and monopolistic structures can be computed. The operational usefulness of such computations is demonstrated via an application to an agricultural industry.

A Defense of Expensive Defense Systems

for the better part of five decades, the trend has gone towards lower numbers as technology gains have made each system more capable. In recent years, these platforms have grown ever more baroque, have become ever more costly, are taking longer to build, and are being fielded in ever-dwindling quantities. Given that resources are not unlimited, the dynamic of exchanging numbers for capability is perhaps reaching a point of diminishing returns.

Defense planning and fiscal strategy

In this article, we consider the optimal fiscal strategy of a government interested in maximizing expected social welfare in the face of a potential future security threat. While the common wisdom is that countries facing security threats should seek to bolster their fiscal position in order to ‘save for a rainy day’, we find that the optimization of expected social welfare may require governments to run ‘precautionary’ fiscal deficits.

Is it the Economy, Stupid?

‘It’s the economy, stupid’, is a common refrain in relation to elections in the United States and one could be forgiven for thinking that the 2006 election in Israel would also be decided by economics. Between the last quarter of 2000 and the virtual defeat of the terror war waged by the Palestinians against Israel in 2004, the country went through an economically quite difficult period. Figure 1 depicts the annual percentage change in Israel’s GDP from 1989 to 2005. As the graph clearly shows, growth rates in 2001 and 2002 were negative, and growth in 2003 was meagre. It is therefore not an exaggeration to say that Israelis experienced three bad years in terms of the economy. As Ouziely has shown, over the three and a quarter years of terror, the total loss of output due to the war amounted to 11.3 percent of 2003 Gross Domestic Product (GDP). Alternatively, without the war, GDP in 2003 would have been 6.5 percent (New Israeli Shekels [NIS]32.6 billion) higher than it actually was. Figure 1 shows, however, another very interesting feature: namely, the procession of decreasing growth rates from 1995, and especially from 1996. Each of the five years from 1995 to 1999 featured a lower growth rate than its predecessor. Since the growth rate in 1989 had also been low, one could reasonably conclude that the relatively high growth rates from 1990 to 1994 were the result of the massive immigration wave from the ex-communist countries, and not due to growth-enhancing reforms. Some argue that the Oslo Agreements of 1993 also played a role in boosting growth, but this is impossible to substantiate. And, in any event, even if there was such an effect, it certainly dissipated when terror attacks on Israeli buses began in 1996. It thus looked as though Israel was on a relatively low-growth trend, something that Benjamin Netanyahu, in his capacity as finance minister from 2002 until shortly before the elections, obviously sought to escape from. And rightly so: the declining growth rates were accompanied by increasing unemployment. From 6.3 percent in 1995, the unemployment rate had increased to 8.8 percent in 2000, before the onset of the War of Terror and the recession. As in any recession of the sort that hit Israel between 2001 and 2003, it is the poorer people who bear the brunt of the

Inflation, the level of investment, and interest rates*

Using a microeconomic model, the paper examines the impact of inflation on the level of investment. In the framework of the loanable-funds market, the behavior of a typical risk averse borrower and a risk averse lender is investigated. It is shown how inflation depresses the level of activity in the loanable-funds market and under what conditions the Fisherian rule for the relation between inflation and the interest rale holds.