Abstract
Chile is illustrative of a transition from command and control to market based water management policy, where economic policy incentives (EPI) play a significant role in water rights allocations. The enabling factor that allowed for the implementation of water rights markets in Chile was Chile’s tradition and culture, dating back to colonial times, of managing water resources with water rights. The Chilean Water Code of 1981 established that water rights are transferable in order to facilitate markets as an allocation mechanism. The framers of the 1981 Water Code sought to achieve efficient water allocations with this EPI. The existence of water markets has been documented. A key conclusion of these studies is that water markets are more prevalent in areas of water scarcity. They are driven by demand from relatively high-valued water uses and facilitated by low transactions costs in those valleys where Water User Associations and infrastructure present assist the transfer of water. In the absence of these conditions trading has been rare and water markets have not become institutionalized. A major challenge of water rights markets in Chile is how to ensure optimal water use without compromising the sustainability of rivers and aquifers. The implementation of this EPI did not establish new institutions; however, it significantly modified their existing powers. Nevertheless, in order for it to deliver its full potential as an efficient allocation mechanism, Chile requires an institutional reform in order to respond to the country’s actual water challenges.
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Notes
- 1.
The Chilean economy is highly dependent on exports from water-intensive commodities such as copper and molybdenum, vegetables, fruits, wine, salmon, and pulp and paper, among others. Thus, economic growth is coupled to water use.
- 2.
An economically efficient water allocation is reached when marginal net benefits are equated across individuals, satisfying Jevon’s Equimarginality Principle.
- 3.
At present, these two characteristics are highly questioned, and Congress is debating a water policy reform to establish expiration dates on new granted WR and to introduce a use it or lose it clause (Ministerio Secretaria General de la Presidencia 2014).
- 4.
Water use in thermal electric generation plants require consumptive WR.
- 5.
Which combines volumetric maximum amounts per unit time in times of plenty, with shares in times of scarcity.
- 6.
But, the DGA can declare certain aquifers to be fully exploited and refuse to grant new groundwater rights.
- 7.
This is a strategic entrepreneurial action, rather than a matter of speculation, per se.
- 8.
γ takes different the value of 0.1 for all regions between Magallanes and Los Lagos, 0.2 for regions between O’Higgins and Araucanía, and 1.6 for all regions north of the Metropolitana. γ is greater in those regions located further north, in order to reflect increased water scarcity.
- 9.
f = 1 for years 1–5, f = 2 for years 6–10, and f = 4 for over 11 years without effective use. Thus f is a temporal factor that increases the non-use tariff if the water use right remains without use.
- 10.
H is only applied to non-consumptive WR and starts at a minimum value of 10 m.
- 11.
The PWR of the DGA has data only for the period 2005–2009. The data for the year 2009 is incomplete.
- 12.
Water communities are any formal group of users that share a common source of water. Canal user associations are formal associations with legal status that can enter into contracts. River user committees are comprised of all the users and canal associations on any river, river section, or stream; they are responsible for administering water and allocating water to different canals.
- 13.
These transaction costs will be involved in any type of water reallocation and are independent of water management institutions. They are present under administrative or market based allocation mechanisms.
- 14.
This percentage diminishes as the total volume of water transferred increases.
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Donoso, G. (2015). Chilean Water Rights Markets as a Water Allocation Mechanism. In: Lago, M., Mysiak, J., Gómez, C., Delacámara, G., Maziotis, A. (eds) Use of Economic Instruments in Water Policy. Global Issues in Water Policy, vol 14. Springer, Cham. https://doi.org/10.1007/978-3-319-18287-2_19
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