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The economic and financial gains from water markets in Chile

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

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.

Suggested Citation

  • Hearne, Robert R. & Easter, K. William, 1997. "The economic and financial gains from water markets in Chile," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 15(3), January.
  • Handle: RePEc:ags:iaaeaj:174029
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    Cited by:

    1. Elwin G. Smith & Mark E. Eiswerth & Terrence S. Veeman, 2010. "Current and Emerging Water Issues in Agriculture: An Overview," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(s1), pages 403-409, December.
    2. Skurray, James H., 2015. "The scope for collective action in a large groundwater basin: An institutional analysis of aquifer governance in Western Australia," Ecological Economics, Elsevier, vol. 114(C), pages 128-140.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Reto Foellmi & Urs Meister, 2012. "Enhancing the Efficiency of Water Supply—Product Market Competition Versus Trade," Journal of Industry, Competition and Trade, Springer, vol. 12(3), pages 299-324, September.
    9. 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).
    10. 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).
    11. Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply – Product Market Competition versus Trade," Public Economics 0412012, EconWPA.
    12. Olmstead, Sheila M., 2014. "Climate change adaptation and water resource management: A review of the literature," Energy Economics, Elsevier, vol. 46(C), pages 500-509.
    13. 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.
    14. Francesco Prota, 2002. "Water Resources And Water Policies," Working Papers 8_2002, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    15. Enrique Ballestero, 2004. "Inter-Basin Water Transfer Public Agreements: A Decision Approach to Quantity and Price," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 18(1), pages 75-88, February.
    16. 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: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(2), pages 475-484, January.
    17. repec:spr:waterr:v:31:y:2017:i:8:d:10.1007_s11269-016-1391-x is not listed on IDEAS
    18. Jian Xie, 2009. "Addressing China's Water Scarcity : Recommendations for Selected Water Resource Management Issues," World Bank Publications, The World Bank, number 2585.
    19. 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.
    20. 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.
    21. 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.
    22. 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.
    23. 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.
    24. 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).
    25. 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.

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