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An Illiquid Market in the Desert: Estimating the Cost of Water Trade Restrictions in Northern Chile

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  • Eric C. Edwards
  • Oscar Cristi
  • Gonzalo Edwards
  • Gary D. Libecap

Abstract

This paper estimates the cost of a policy to restrict water trades to mining firms in northern Chile to protect riparian ecosystems and indigenous agriculture. In response to the policy, mining firms have developed high-cost desalination and pumping facilities to secure adequate water supplies. We develop a methodology and estimate the cost of market transactions that fail to occur due to the policy. Lost trade surplus is estimated at $52 million per year. Without trade restrictions, around 86% of the remaining agricultural water in the region would be transferred to mining.

Suggested Citation

  • Eric C. Edwards & Oscar Cristi & Gonzalo Edwards & Gary D. Libecap, 2016. "An Illiquid Market in the Desert: Estimating the Cost of Water Trade Restrictions in Northern Chile," NBER Working Papers 21869, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21869
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    Cited by:

    1. Edwards, Eric C. & Go, Dong-Hun & Oladi, Reza, 2020. "Predator–prey dynamics in general equilibrium and the role of trade," Resource and Energy Economics, Elsevier, vol. 61(C).
    2. Bruno, Ellen M. & Jessoe, Katrina, 2021. "Missing markets: Evidence on agricultural groundwater demand from volumetric pricing," Journal of Public Economics, Elsevier, vol. 196(C).
    3. Eric C. Edwards, 2016. "Book Review: “Chasing Water — A Guide for Moving from Scarcity to Sustainability”," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-4, June.

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    More about this item

    JEL classification:

    • N56 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Latin America; Caribbean
    • N76 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Latin America; Caribbean
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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