A case study of the Chilean water markets

What is it about?

The main objective of this study is to develop a case study of the market of water use rights established in the Water Code of Chile of 1981. The evaluation of the Water Code of 1981 shows that this allocation system based on water rights market has significant economic benefi ts. However, the adequate application of this system requires strengthening the institutional framework to achieve the integrated management and sustainable use of water.

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Why is it important?

Growing water scarcity puts more pressure on policy makers to improve water allocation, make irrigation systems financially sound, and provide incentives for adoption of water-saving technologies. Allocation mechanisms based on water use rights markets have been implemented in the case of Chile, India, Pakistan, USA and Australia. A key conclusion of the Chilean case is that water markets are driven by relative scarcity of water resources, demand from relatively high-valued water uses and facilitated by low transactions costs in those valleys where WUAs 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 in most valleys.