An illiquid market in the desert: estimating the cost of water trade restrictions in northern Chile

This paper estimates the cost of a policy to restrict water trades to mining firms in northern Chile in order 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 suppl...

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Bibliographic Details
Published in:Environment and development economics 2018-12, Vol.23 (6), p.615-634
Main Authors: Edwards, Eric C., Cristi, Oscar, Edwards, Gonzalo, Libecap, Gary D.
Format: Article
Language:English
Subjects:
Agricultural economics
Agricultural ecosystems
Agriculture
Community
Consumption
Cost estimates
Desalination
Developing countries
Economic development
Economic models
Ecosystems
Environmental policy
Environmental regulations
Expected values
LDCs
Market prices
Marketing
Markets
Mines
Mining
Mining industry
Regulation
RESEARCH ARTICLE
Surface water
Trade policy
Trade restrictions
Water
Water rights
Water shortages
Water supply
Wetlands
Willingness to pay
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Summary:This paper estimates the cost of a policy to restrict water trades to mining firms in northern Chile in order 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 US$52 million per year. Without trade restrictions, around 86 per cent of the remaining agricultural water in the region would be transferred to mining.
ISSN:1355-770X
1469-4395
DOI:10.1017/S1355770X18000220