Abstract

Water markets are often expected to reallocate water under scarcity, yet evidence for groundwater systems remains limited. This study examines market responsiveness to drought in northern Chile using transaction data, climatic indicators (Standardized Precipitation-Evapotranspiration Index (SPEI)) and qualitative evidence. Results show asymmetric responsiveness: transaction activity increases during drought, but traded volumes and prices do not. This indicates that markets respond through legal exchange without substantial physical reallocation or scarcity-based price signals. Qualitative evidence highlights the role of institutional constraints, expectations and water quality concerns. These findings challenge assumptions about market-based adaptation and underscore the need to embed water markets within broader governance frameworks.