Two-Pronged Control of Natural Resources: Prices and Quantities with Lobbying

This study offers an extension of Grossman and Helpman (1994) political-economic framework to model an industry regulated by an integrated system of both direct and market-based policies. The model is incorporated into a normative theoretical analysis and serves as a basis for structural econometric estimations. Utilizing disaggregated data on agriculture and irrigation in Israel in the mid-1980s, when water was regulated by both quotas and prices, the model’s political and technological parameters are structurally estimated and used to assess the relative efficiencies of quotas, prices, and an integrated regulation regime.