Study of the Chilean water rights policy

What is it about?

Chile is illustrative of a transition from command and control to market based water management policy, where economic policy incentives (EPI) play a significant role in water rights allocations. The Chilean Water Code of 1981 established that water rights are transferable in order to facilitate markets as an allocation mechanism. The framers of the 1981 Water Code sought to achieve efficient water allocations with this EPI. The existence of water markets has been documented.

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Why is it important?

A key conclusion is that water markets are more prevalent in areas of water scarcity. They are driven by demand from relatively high-valued water uses and facilitated by low transactions costs in those valleys where Water User Associations and infrastructure present assist the transfer of water. In the absence of these conditions trading has been rare and water markets have not become institutionalized. A major challenge of water rights markets in Chile is how to ensure optimal water use without compromising the sustainability of rivers and aquifers.