Abstract

The main objective of this study is to develop a case study of the market of water use rights established in the Water Code of Chile of 1981. The evaluation of the Water Code of 1981 shows that this allocation system based on water rights market has significant economic benefits. However, the adequate application of this system requires strengthening the institutional framework to achieve the integrated management and sustainable use of water. Additionally, one can conclude that the performance of the water use rights market in Chile has been variable. The variability in performance of the market can be explained by problems both related to and independent of the allocation system. The most important problems independent of the water allocation mechanism are those arising as a result of unavoidable transaction costs, externalities due to inadequate defi nition of use rights in the Water Code, and uncertainty regarding the availability of water. Likewise, certain problems related to the allocation system have been identified problems such as the lack of adequate and timely information; the difference between nominal and in rem (Latin term used to describe jurisdiction over property without regard to personal jurisdiction) rights; conflicts arising between users due to the sale of traditional rights; avoidable transaction costs; and the hoarding of non-consumptive rights. In summary, the water use rights market represents a useful allocation mechanism for water resources. However, it is necessary to reformulate the regulatory framework of this mechanism so as to reduce the existence of conditioning factors that have limited the efficiency, sustainability, and replicability of this allocation mechanism.