The water economy in Israel has been the focus of intense public debate for quite a while. Three successive dry years drew attention to the mismanagement of this scarce resource, and record rains during the 1991-1992 season shifted the debate to the question of the appropriate use of transitory affluence...

The purpose of this paper is to clarify fundamental issues: the causes and effects of over-pumping, hydrological deficits, pollution of water sources, destruction of reservoirs, water pricing, allocation of capital cost, and the function of water subsidies.

The principal thesis...is that although water sources must remain under public supervision, water allocation should rely on full costs pricing.