Optimal Allocation of Agricultural Crops in the Open Spaces in Israel : Economic, Financial and Environmental Considerations*

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IntroductionThe focus in this paper is on open spaces in Israel and the optimal allocation of agricultural crops grown in these areas. We assign economic values also to products which we have not paid for, but that we believe are important. Regarding agriculture and the environment, one should not only look at beauty and scenery, but also at many other influencing factors including shade, noise, effect on groundwater, and other issues that characterize agriculture and its' interrelationship with the open spaces. Any environmental decision-making should include economic considerations (Haruvy1; Haruvy2; Haruvy, et al.3). We used the economic value of the different influences given in existing literature, and estimated the environmental influences of the different agricultural branches based on questionnaires filled by experts on the relevant subject.Agriculture production is passing many changes, which should be examined regarding environmental aspects (Spharim, and Haruvy5; Shalhevet, et al.6,7). Agriculture is a combination of a private and public economic goods, where a public good is consumed by several people, and its value is not fully expressed by the market price. Also, agricultural production affects the public by positive and negative externalities. Among the positive externalities we count the scenery as the positive influence on air quality, noise reduction, shading and temperature reduction, contribution to biodiversity, contribution to the hydrological and ecological systems, and the contribution to tourism and recreation.Table 1 peresents the results of a survey conducted in the US that asked people to rank the relative importance of benefits from urban trees. We can see that the trees aesthetic value fas contributing to scencery received the highest rating. Inn other words, the aesthetic pleasure is more important than convenience as expressed by shade, noise or health. The other benefits from trees, the descending order of importance, were shade provision, increase in housing value, noise reduction and reduced air polluiton.One cannot discuss externalities objectively without presenting the negative externalities, which include potential damage to air, soil and water resources, caused by the use of fertilizers and pesticides. Our objective is to examine both the positive and negative aspects to reach an optimal solution. Before optimization, quantification must be done. Assigning a quantitative value enables us to define orders of magnitude, and rate different issues in order to compare them. There are different approaches to measuring values, including hedonic pricing, which expresses the influence on property value; the value of a natural system, and the value of the expenditures on recreational activities; and, the approach of estimating the willingness to pay, based on preference questionnaires (Fleischer and Tsur9). Each approach has its advantages and disadvantages, yielding different results. Negative externalities have values as well, which can be measured by the degree and cost of the damage or how much it costs to prevent the damage or to mitigate it.Usually, the total value of the economic, social and environmental value of the agricultural areas is higher than their value as a source of production for the farmers. The farmer makes decisions according to the influence on his profits. However, when we as a society or an organization adopting the viewpoint of the public, we have to look at the maximum welfare. The factor that planning agencies should be most interested in is maximum welfare, that is, what the farmers makes as well as how much his production contributes to the welfare of the public.Methodology UsedThe objective of our analysis is optimization. Optimization is expressed by choosing the crops that will bring the maximum regional welfare as we define it. We define an optimization model and discuss a target function on two levels: the level of the individual farmers as expressed in terms of profits, and the objective of the society as a whole which includes the contribution to others, whether they live in the region or far from it. …