This paper applies a discrete-choice framework with product differentiation to model the rural tourism industry in Israel and to jointly estimate the effect of lodging and farm characteristics on consumer preferences and firms' costs. The model accounts for heterogeneity in tastes and technologies and allows for unobservable product characteristics. We find evidence for technological synergy in joint production of farming and rural hospitality, but none in the demand. The differentiation in the industry is vast and is the major contributor to the price-cost margin, which averages 62%. An additional minor cause are government regulations, which restrict supply. Simulation results demonstrate the growth potential of the industry and show that the government can play an important role in catalyzing growth via investment subsidization, deregulation of supply and information distribution.