An illiquid market in the desert: estimating the cost of water trade restrictions in northern Chile. (21st June 2018)

• Record Type: Journal Article
• Authors: Edwards, Eric C.; Cristi, Oscar; Edwards, Gonzalo; Libecap, Gary D.
• Is Part Of: Environment and development economics. Volume 23:Number 6(2018)
• Page Start: 615
• Page End: 634
• Publication Date: 2018-06-21
• Subjects: Desalination, -- economic development, -- markets, -- mining, -- water; Economic development -- Environmental aspects; 330.9
• DOI: 10.1017/S1355770X18000220
• Languages: English
• ISSNs: 1355-770X

Abstract

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.