NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

An Illiquid Market in the Desert: Estimating the Cost of Water Trade Restrictions in Northern Chile

Eric C. Edwards, Oscar Cristi, Gonzalo Edwards, Gary D. Libecap

NBER Working Paper No. 21869
Issued in January 2016, Revised in February 2018
NBER Program(s):Development of the American Economy, Environment and Energy Economics

This paper estimates the cost of a policy to restrict water trades to mining firms in northern Chile 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 $52 million per year. Without trade restrictions, around 86% of the remaining agricultural water in the region would be transferred to mining.

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Document Object Identifier (DOI): 10.3386/w21869

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