The Distributive Impact of the Water Market in Chile: A Case Study in Limari Province, 1981- 1997

by Donato Romano; Michel Leporati

Jan 1, 2002
The introduction of a strong market-oriented economic policy after the 1973 golpe in Chile led to economic reforms during the 1980s, characterised by deregulation, decentralisation and privatisation of several economic sectors. The reform of the water sector took place as part of this trend. Its overall objective was to increase water-use efficiency, implementing a private management model based on the development of water markets. The model represents the most profound reform that has ever been carried out worldwide in this sector, due to its radical neo-liberal conception and to its duration (in force since 1981). Many studies have been carried out focusing mainly on the efficiency impact of the reform but no one on its distributive effects. This paper aims to fill this gap. The case study (Limarí Province, IV Region) examines the distributive impacts on the relevant population (in particular on the poor and the most vulnerable groups, like peasants) through the analysis of all water use rights transactions which have taken place in the area from 1981 to 1997, and the determinants of peasants' participation in water market, using survey data from a significant sample (2.4%) of peasant households in the area. The study shows that the distribution of water rights has worsened since 1981. Namely, peasants' share of water rights decreased significantly as time went on, both in aggregate and per capita terms, undermining their agricultural production potential and leading to a deterioration of their standards of living. Moreover, the share in water rights by the agricultural sector as a whole decreased, while that by non-agricultural sectors increased. The study shows also that peasants access water resources primarily through the claim of original rights and enter only marginally the water market, usually as sellers, showing a weak bargaining power. Their behaviour in the water market is determined by well identified social, economic and institutional variables, such as the age of the head of household, the educational level of the family, the participation in agricultural organisations, the managerial positions in water users' associations, the access to information in local water market, the access to credit and the crop mix.

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