Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-12T22:16:09.520Z Has data issue: false hasContentIssue false

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: [email protected]

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anderson, K (1995) Lobbying incentives and the pattern of protection in rich and poor countries. Economic Development and Cultural Change 43(2), 401423.Google Scholar
Arrow, KJ et al. (1996) Is there a role for benefit-cost analysis in environmental, health, and safety regulation? Science 272(5259), 221222.Google Scholar
Bauer, CJ (1997) Bringing water markets down to earth: the political economy of water rights in Chile, 1976–1995. World Development 25(5), 639656.Google Scholar
Bauer, CJ (1998) Against the Current: Privatization, Water Markets, and the State in Chile. Boston, MA: Springer Science & Business Media.Google Scholar
Bogges, W, Lacewell, R and Zilberman, D (1993) Economics of water use in agriculture. In Carlson, GA, Zilberman, D and Miranowski, JA (eds), Agricultural and Environmental Resource Economics. Oxford, UK: Oxford University Press, pp. 319392.Google Scholar
CDEC-SING (2015) Annual Report and Operational Statistics, Santiago, Chile. Center for Economic Load Dispatch of Northern Interconnected System. Available at http://cdec2.cdec-sing.cl/html_docs/anuario2015/ingles/files/assets/common/downloads/publication.pdf.Google Scholar
Centro de Ecología Aplicada (2011) Diseño del Inventario Nacional de Humedales y el Seguimiento Ambiental. Santiago, Chile: Ministerio de Medio Ambiente. Available at http://bibliotecadigital.ciren.cl/handle/123456789/6276 (In Spanish).Google Scholar
Coase, RH (2013). The problem of social cost. The Journal of Law and Economics 56(4), 837877.Google Scholar
Cochilco (2014) Database of Statistics on Mineral Production. Available at http://www.cochilco.cl/estadisticas/produccion.asp.Google Scholar
Cristi, O et al. (2014) The effect of regulatory uncertainty on water-right prices: the case of the Loa Basin in the Antofagasta Region of Chile. Proceedings of the 2014 International Conference on Energy, Environment, Development and Economics, 17–19 July 2014, Santorini Island, Greece.Google Scholar
Cristi, OE (2007) The Influence of Heterogeneous Risk Preferences on Water Market Activity: an Application to the Paloma System of the Limari Water Basin, Chile (PhD dissertation). University of Maryland, College Park, MD.Google Scholar
Cropper, ML et al. (1992) The determinants of pesticide regulation: a statistical analysis of EPA decision making. Journal of Political Economy 100(1), 175197.Google Scholar
Davies, R (1997) Environmental regulation, benefit-cost analysis and the policy environment in less developed countries. Environment and Development Economics 2(2), 195221.Google Scholar
DGA (Dirección General de Aguas) (2005) Evaluación de Los Recursos Hídricos Superficiales en la Cuenca del Rio Loa. Santiago, Chile: Technical Report SDT No 192 (In Spanish).Google Scholar
DGA (Dirección General de Aguas) (2007) Estimaciones de Demanda de Agua y Proyecciones Futuras, Zona I Norte, Regiones I A IV. Santiago, Chile: S.I.T. No 122 (In Spanish).Google Scholar
DGA (Dirección General de Aguas) (2008) Derechos, Extracciones y Tasas Unitarias de Consumo de Agua del Sector Minero, Regiones Centro-Norte de Chile. Santiago, Chile: S.I.T. No 146 (In Spanish).Google Scholar
Edwards, EC and Kirk-Lawlor, NE (2013) The economic value of an aquifer with beneficial outflows. Working paper. Available at http://www2.bren.ucsb.edu/~eredwards/WP-Holes_in_the_Bathtub.pdf.Google Scholar
EIA (Energy Information Administration) (2017) How much carbon dioxide is produced per kilowatt hour when generating electricity with fossil fuels? Available at https://www.eia.gov/tools/faqs/faq.php?id=74&t=11.Google Scholar
Grafton, R et al. (2011) An integrated assessment of water markets: a cross-country comparison. Review of Environmental Economics and Policy 5(2), 219239.Google Scholar
Greenstone, M, List, JA and Syverson, C (2012) The effects of environmental regulation on the competitiveness of US manufacturing. National Bureau of Economic Research Working Paper No. w18392.Google Scholar
Griffin, R (2006) Water Resource Economics. Cambridge, MA: MIT Press.Google Scholar
Guasch, JL and Hahn, RW (1999) The costs and benefits of regulation: implications for developing countries. The World Bank Research Observer 14(1), 137158.Google Scholar
Hearne, RR (1998) Institutional and organizational arrangements for water markets in Chile. In Easter, KW, Rosegrant, MW and Dinar, A (eds), Markets for Water. Natural Resource Management and Policy, vol. 15. Boston, MA: Springer, pp. 141157.Google Scholar
Hearne, RR and Donoso, G (2014) Water markets in Chile: are they meeting needs? In Easter, KW and Huang, Q (eds). Water Markets for the 21st Century: What Have We Learned? Netherlands: Springer, pp. 103126.Google Scholar
Hearne, RR and Easter, KW (1995) Water Allocation and Water Markets: an Analysis of Gains-from-trade in Chile. World Bank technical paper no. WTP 315. Washington, DC: World Bank Publications.Google Scholar
Kotchen, M and Burger, N (2007) Should we drill in the Arctic national wildlife refuge? An economic perspective. Energy Policy 35(9), 47204729.Google Scholar
Lichtenberg, E and Zilberman, D (1986) The welfare economics of price supports in US agriculture. The American Economic Review 76(5), 11351141.Google Scholar
Mentor, J (2001) Trading water, trading places: water marketing in Chile and the western United States. Paper presented at the AWRA/IWLRI-University of Dundee International Specialty Conference, 6–8 August 2001, Dundee, Scotland. Available at http://www.awra.org/proceedings/dundee01/Documents/Mentor.pdf.Google Scholar
Ministerio de Desarrollo Social (2015) Chile National Socioeconomic Characterization Survey. Available at http://observatorio.ministeriodesarrollosocial.gob.cl/casen-multidimensional/casen/basedatos.php.Google Scholar
Montgomery, CA, Brown, GM Jr and Adams, DM (1994) The marginal cost of species preservation: the northern spotted owl. Journal of Environmental Economics and Management 26(2), 111128.Google Scholar
Nieswiadomy, M (1988) Input substitution in irrigated agriculture in the high plains of Texas, 1970–80. Western Journal of Agricultural Economics 13(1), 6370.Google Scholar
Olsson, U (2005) Confidence intervals for the mean of a log-normal distribution. Journal of Statistics Education 13(1), 19.Google Scholar
Peña, H (2004) Chile: 20 años del Código de Aguas. In Donoso, G, Jouravlev, A, Peña, H and Zegarra, E (eds), Mercados (de derechos) de agua: experiencias y propuestas en América del Sur. Santiago, Chile: United Nations, pp. 1324 (In Spanish).Google Scholar
Pizer, WA and Kopp, R (2005) Calculating the costs of environmental regulation. In Maler, K-G and Vincent, JR (eds), Handbook of Environmental Economics, vol. 3. Amsterdam: Elsevier, pp. 13081344.Google Scholar
Prieto, M (2016) Bringing water markets down to Chile's Atacama Desert. Water International 41(2), 191212.Google Scholar
Romero, H, Méndez, M and Smith, P (2012) Mining development and environmental injustice in the Atacama Desert of Northern Chile. Environmental Justice 5(2), 7076.Google Scholar
Salazar, C et al. (2003) Evaluación de los recursos hídricos sectores calama y llalqui cuenca del rio loa. Santiago, Chile: Departamento de Estudios Y Planificación STI No. 85 (In Spanish).Google Scholar
Schoengold, K, Sunding, DL and Moreno, G (2006) Price elasticity reconsidered: panel estimation of an agricultural water demand function. Water Resources Research 42(9), W09411.Google Scholar
Tol, RS (2005) The marginal damage costs of carbon dioxide emissions: an assessment of the uncertainties. Energy Policy 33(16), 20642074.Google Scholar
Undersecretary of Mining (2014) Empresas Mineras y Pueblos Indígenas en Chile: Buenas Prácticas para la Construcción de Relaciones de Beneficio Mutuo. Santiago, Chile: Subsecretaría de Minería. Available at http://www.codexverde.cl/wp-content/uploads/2014/03/Empresas_Mineras_y_Pueblos_Indigenas_en_Chile.pdf (In Spanish).Google Scholar
World Bank (2011) Diagnóstico de la gestión de los recursos hídricos. Departamento de Medio Ambiente y Desarrollo Sostenible Región para América Latina y el Caribe, Publication number 63392. Available at http://documents.worldbank.org/curated/en/452181468216298391/Chile-Diagn-243-stico-de-la-gesti-243-n-de-los-recursos-h-237-dricos (In Spanish).Google Scholar
Zhou, XH and Gao, A (1997) Confidence intervals for the log-normal mean. Statistics in Medicine 16(7), 783790.Google Scholar
Supplementary material: PDF

Edwards et al. supplementary material

Online Appendix

Download Edwards et al. supplementary material(PDF)
PDF 438.8 KB