ABSTRACT
Finally, Arie Arnon, Avia Spivak and Oren Sussman present a model of the case for constructing a port in Gaza with strategic assets and incomplete contracts, as a way of raising broader issues about economic integration between Israel and Palestine. Previous discussion had emphasised the lower costs of the Israeli port of Ashdod, with its excess capacity. However, they are able to show that if Israel is free to set (and reset) the price of its port services the first best solution will not be attainable. It is therefore better for both parties that a port should be built in Gaza, even if its costs are higher than those of Ashdod and it later turns out to be underutilised. They interpret their finding as showing ‘that modern economic theory does not support a priori the view that the optimal level of integration is full integration’. In his comment Jonathan Thomas looks closely at the assumptions of the model, arguing the importance of unverifiability rather than the unenforceability of contracts on sovereign states.
