Identifying the Determinants of Water Rights Price : The Chilean Case

Abstract

This study investigates the water rights markets across various regions of Chile, encompassing a wide range of geographic and climatic conditions. Utilizing 10,345 transaction records from 1990 to 2014 provided by the national authority for the regulation of utilities, this dataset covers data from 12 of the 15 regions of Chile at the time and 26 basins across the country. The comprehensive nature of this study, which has not been previously achieved with such a reliable and extensive dataset, aims to analyze price determinants in these markets. This novel approach allows us to understand the global performance of water markets. Key considerations include climatic variables such as annual precipitation and maximum temperatures, regional GDP per capita, and factors like mining industrialization level, transaction size, rurality index, and the existence of scarcity decrees. Employing a hedonic model, particularly a quantile model with robust errors, the research assesses the impact of these variables on observed prices. The findings reveal market heterogeneity with variables such as precipitation, geopolitical, and demographic characteristics, industrialization, and transaction volume significantly influence water rights prices. Interestingly, water scarcity decrees, intended to minimize drought damages, paradoxically resulted in lower water right prices. The study also highlights a predominant corporate presence and sector-specific purchasing geographic patterns, particularly in the agricultural and mining sectors. These insights are critical for ecosystem services valuation and for informing sustainable water resource management in the face of climate change and natural resource governance challenges.