The market and water management reform in Peru

This article examines the unsuccessful attempts made in the 1990s to introduce a market for water in Peru. This reform was thwarted because market operations were identified with water rights privatization, even though a market can perfectly well operate on a basis other than that of private rights, with the State retaining full ownership of the resource. The argument made here is that if these shortcomings were corrected, the creation of a water market would be desirable to improve allocation and management of water and to deal with the increasingly serious difficulties associated with the administration of water access, the lack of investment incentives and serious problems of efficiency and equity. The economic advantages and disadvantages of a water market are analysed, as are the legal and regulatory prerequisites for promoting the kind of market that would really improve water allocation in the increasingly necessary institutional reform of this sector in Peru.