The Chilean Water Market System and Obstacles to Efficient Water Use

The formal water market system in Chile is presented, focusing on obstacles to economically, environmentally, and socially efficient use of water. In Chile water resources availability varies substantially by longitudinal location, with arid and semiarid conditions in the north and center of the country, the principal areas of population and economic activity. Water distribution management is characterized by broad private-sector involvement based on historical participation in agricultural communities and reinforced in the Water Code of 1981, which encourages market transactions to redistribute water. Other water management sectors are less developed. The overall water resources management system is subject to weak and fragmented oversight by numerous government institutions that sometimes have competing and overlapping responsibilities. Water market transactions have been limited in magnitude due to physical limitations, an incomplete economic framework, administrative difficulties, weaknesses in other management sectors, and social attitudes. In addition, environmental concerns and social cost are not directly considered in the present system. Water markets can serve to redistribute water where it is scarce and there is competition for the resource. However, a comprehensive supportive framework must be in place to assist free water market transactions, one that addresses the multiuse nature of water and that considers economic, environmental, and social objectives.