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

Published online by Cambridge University Press:  21 June 2018

Eric C. Edwards*
North Carolina State University, Raleigh, USA
Oscar Cristi
Universidad San Sebastián, Santiago, Chile
Gonzalo Edwards
Pontificia Universidad Católica de Chile, Santiago, Chile
Gary D. Libecap
University of California, Santa Barbara, USA National Bureau of Economic Research, Cambridge, USA
*Corresponding author. Email:


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.

Research Article
Copyright © Cambridge University Press 2018 

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