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

Abstract

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.

Type
Research Article
Copyright
Copyright © Cambridge University Press 2018 

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