Results of Chilean water markets: Empirical research since 1990

Abstract

Chile's free-market Water Code turned 20 years old in October 2001. This anniversary was an important milestone for both Chilean and international debates about water policy because Chile has become the world's leading example of the free-market approach to water law and water resources management, the textbook case of treating water rights not merely as private property but also as a fully marketable commodity. The predominant view outside of Chile is that Chilean water markets and the Chilean model of water management have been a success, and this perception has encouraged other countries to follow Chile's lead in water law reform. Much of the debate about Chilean water markets, however, has been based more on theoretical or political beliefs than on empirical study. This paper reverses that emphasis by reviewing the evolution of empirical research about these markets since 1990, when Chile returned to democratic government after 16 years of military rule. During the period since 1990, understanding of how Chilean water markets have worked in practice has gradually improved. There have been two major trends in this research: first, a gradual shift from exaggerated claims of the markets' success toward more balanced assessments of mixed results and, second, a heavy emphasis on the economics of water rights trading with very little attention given to the Water Code's impacts on social equity, river basin management, environmental protection, or resolution of water conflicts. The analysis in this study is qualitative and interdisciplinary, combining law, economics, and institutions.