Water Markets

Abstract

Chile’s system of water management has traditionally featured user management of rivers and canals and private water rights. Chile’s National Water Law of 1981 maintained this tradition and was designed to foster the efficiencies of water markets. In a number of key river basins in northern and central Chile water markets have allowed expanding mines and growing cities to purchase water rights from farmers. The majority of transactions have been between agricultural users, with resulting efficiency gains. The presence of adjustable gates to easily modify flows and well-managed water users’ associations have reduced transactions costs and fostered trading. The wide range of transactions’ prices demonstrate that markets are imperfect and subject to the individual bargaining power of the buyers and sellers. Despite continued needs to improve market information and formalize customary water rights, the volume of water being reallocated by water markets have continued to grow throughout the nation. In the 35 years after the 1981 National Water Law, water markets have matured.