Chilean Water Policy: The Role of Water Rights, Institutions and Markets

Abstract

Allocation of water through markets in tradable water rights in Chile has fostered efficient use of water; facilitated a shift to high-value crops which use less water per unit value of output; has given farmers greater flexibility to shift cropping patterns according to market demand through the purchase, rent and lease of water; and induced im proved efficiency in urban water and sewage services. In addition, the Chilean water policy, by reducing huge con struction and operations and maintenance subsidies to better-off farmers and urban water consumers, has freed-up public resources that have been utilized to provide direct and transparent targeted subsidies for poor urban water users and small farmers. This paper discusses the political and economic environment that facilitated the establishment of the new water policy, and describes the characteristics of tradable water rights in Chile and the legal and institutional basis for enforcing them.