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The economic and financial gains from water markets in Chile

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  • Hearne, Robert R.
  • William Easter, K.

Abstract

Chile is one of the few countries that has encouraged the use of markets in water resource management. In order to assess the impact of water markets and transactions costs in Chile, four river valleys, the Maipo, Elqui, Limari, and the Azapa were selected as case studies. Transactions from the Elqui and Limari valleys, during the years 1986 to 1993, were analyzed to determine the gains-from-trade from market transfers. In the economic and financial analysis of water markets, crop budgets were used to estimate the value of water in agricultural production. The value of water-use rights to urban water-supply companies was estimated using the avoided cost of an alternative investment in a water-storage reservoir. The analysis demonstrated that the market transfer of water-use rights does produce substantial economic gains-from-trade in both the Elqui and Limari Valleys. These economic gains produce rents for both buyers and sellers. But buyers, especially farmers growing profitable crops who buy water-use rights and individuals buying water-use rights for potable water supply, receive higher rents then sellers. Large table-grape producers in the Limari Valley and individuals buying water for human consumption in the Elqui Valley received the highest rents. In the Elqui Valley net gains-from-trade per share were within the range of recent transfer prices of US$1000. In the Limari Valley, gains-from-trade per share are 3.4 times the recent prices of US$3000 for a share of water from the Cogoti Reservoir. Where trading was active, especially in the Limari Valley, transactions costs have not presented an appreciable barrier to trading. Nonetheless, in the large canal systems with fixed flow dividers in the Elqui and Maipo Valley there have been very few transactions. Various factors contribute to the lack of trading, but the absence of trading in these large canal systems highlights the costs of modifying fixed infrastructure, especially for trades between farmers.

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Bibliographic Info

Article provided by Blackwell in its journal Agricultural Economics.

Volume (Year): 15 (1997)
Issue (Month): 3 (January)
Pages: 187-199

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Handle: RePEc:eee:agecon:v:15:y:1997:i:3:p:187-199

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  1. James E. T. Moncur & Richard L. Pollock, 1988. "Scarcity Rents for Water: A Valuation and Pricing Model," Land Economics, University of Wisconsin Press, vol. 64(1), pages 62-72.
  2. Michael D. Rosen & Richard J. Sexton, 1993. "Irrigation Districts and Water Markets: An Application of Cooperative Decision-Making Theory," Land Economics, University of Wisconsin Press, vol. 69(1), pages 39-53.
  3. Dinar, Ariel & Letey, J., 1991. "Agricultural water marketing, allocative efficiency, and drainage reduction," Journal of Environmental Economics and Management, Elsevier, vol. 20(3), pages 210-223, May.
  4. Kling, Catherine L. & Weinberg, Marca & Wilen, James, 1993. "Water Markets and Water Quality," Staff General Research Papers 1572, Iowa State University, Department of Economics.
  5. Rosegrant, Mark W. & Binswanger, Hans P., 1994. "Markets in tradable water rights: Potential for efficiency gains in developing country water resource allocation," World Development, Elsevier, vol. 22(11), pages 1613-1625, November.
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Cited by:
  1. Skurray, James H. & Roberts, E.J. & Pannell, David J., 2013. "Hydrological challenges to groundwater trading: lessons from south-west Western Australia," Working Papers 161073, University of Western Australia, School of Agricultural and Resource Economics.
  2. Foellmi, Reto & Meister, Urs, 2011. "Enhancing the Efficiency of Water Supply – Product Market Competition versus Trade," CEPR Discussion Papers 8423, C.E.P.R. Discussion Papers.
  3. Mansur, Erin T. & Olmstead, Sheila M., 2012. "The value of scarce water: Measuring the inefficiency of municipal regulations," Journal of Urban Economics, Elsevier, vol. 71(3), pages 332-346.
  4. Francesco Prota, 2002. "Water Resources And Water Policies," Working Papers 8_2002, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  5. Lankford, Bruce A., 2004. "Resource-centred thinking in river basins; should we revoke the crop water requirement approach to irrigation planning?," Agricultural Water Management, Elsevier, vol. 68(1), pages 33-46, July.
  6. Hansen, Kristiana & Howitt, Richard E. & Williams, Jeffrey C., 2006. "Implementing Options Markets in California To Manage Water Supply Uncertainty," 2006 Annual meeting, July 23-26, Long Beach, CA 21218, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Sheila M. Olmstead, 2010. "The Economics of Managing Scarce Water Resources," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(2), pages 179-198, Summer.
  8. Enrique Ballestero, 2004. "Inter-Basin Water Transfer Public Agreements: A Decision Approach to Quantity and Price," Water Resources Management, Springer, vol. 18(1), pages 75-88, February.
  9. Vollaro, M. & Zavalloni, M. & Raggi, M. & Viaggi, D., 2013. "Potential for water use right market development in Italy: social acceptability in the context of climate change," 2013 Second Congress, June 6-7, 2013, Parma, Italy 149912, Italian Association of Agricultural and Applied Economics (AIEAA).
  10. Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply – Product Market Competition versus Trade," Public Economics 0412012, EconWPA.
  11. Easter, K William & Rosegrant, Mark W & Dinar, Ariel, 1999. "Formal and Informal Markets for Water: Institutions, Performance, and Constraints," World Bank Research Observer, World Bank Group, vol. 14(1), pages 99-116, February.
  12. Garrick, Dustin & Whitten, Stuart M. & Coggan, Anthea, 2013. "Understanding the evolution and performance of water markets and allocation policy: A transaction costs analysis framework," Ecological Economics, Elsevier, vol. 88(C), pages 195-205.
  13. Hearne, Robert R. & Trava, Jose L., 1997. "Water Markets in Mexico: Opportunities and Constraints," Discussion Papers 24145, International Institute for Environment and Development, Environmental Economics Programme.
  14. Legras, Sophie & Lifran, Robert, 2006. "Designing Water Markets to Manage Coupled Externalities: An Application to Irrigation-Induced Salinity in Australia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25350, International Association of Agricultural Economists.
  15. Li Zhang & Shao Jia & Chi Leung & Li Guo, 2013. "An Analysis on the Transaction Costs of Water Markets under DPA and UPA Auctions," Water Resources Management, Springer, vol. 27(2), pages 475-484, January.
  16. Jian Xie, 2009. "Addressing China's Water Scarcity : Recommendations for Selected Water Resource Management Issues," World Bank Publications, The World Bank, number 2585, February.
  17. Backeberg, G.R., 1997. "Water institutions, markets and decentralized resource management: Prospects for innovative policy reforms in irrigated agriculture," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 36(4), December.
  18. Takahashi, Taro & Aizaki, Hideo & Ge, Yingchun & Ma, Mingguo & Nakashima, Yasuhiro & Sato, Takeshi & Wang, Weizhen & Yamada, Nanae, 2013. "Agricultural water trade under farmland fragmentation: A simulation analysis of an irrigation district in northwestern China," Agricultural Water Management, Elsevier, vol. 122(C), pages 63-66.
  19. Brennan, Donna C. & Scoccimarro, Michelle, 1999. "Issues in defining property rights to improve Australian water markets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(1), March.
  20. Hansen, Kristiana & Howitt, Richard E. & Williams, Jeffrey C., 2005. "An Econometric Test of the Endogeneity of Institutions: Water Markets in the Western United States," 2005 Annual meeting, July 24-27, Providence, RI 19548, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  21. Hassan, Roger, 2013. "A Thirst for Efficiency: Finding the Relationship between Water Trading and Agricultural Water Use Efficiency in the Murray-Darling Basin," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152156, Australian Agricultural and Resource Economics Society.

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