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The impact of institutional constraints on the Limarí River Valley water market
Author(s) -
Hadjigeorgalis Ereney,
Lillywhite Jay
Publication year - 2004
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/2003wr002701
Subject(s) - welfare , water trading , irrigation , water conservation , economics , deadweight loss , irrigation district , business , natural resource economics , agricultural economics , water resource management , environmental science , market economy , ecology , biology
Institutional constraints on water and water rights trades are usually implemented to reduce the potential costs of free trade in water rights, but these constrains are themselves not without cost. Using data on permanent water rights and annual spot water transactions in the Limarí River Valley of northern Chile, we test for trade barrier‐induced price differences in the constrained permanent water rights market versus the unconstrained spot water market and then estimate the welfare losses generated as a result of these restrictions. We find that trade barriers in the permanent water rights market cause prices to diverge across adjacent irrigation districts for homogenous water rights despite the fact that prices equalize across irrigation districts in the unconstrained spot water market. The resulting estimates of welfare losses from these barriers in the permanent water rights market are found to be significant.