Chile: is the fee for non-use of water rights effective?

Abstract

This paper examines whether the fees for non-use of water rights implemented in Chile in 2005 have provided an incentive for the exploitation of unused water. Two comparisons are made and descriptively analysed: between fees charged and paid, and between fees and the market price of water rights. In the successive fee charging rounds, payment levels increased from 67% of the total charged in 2007 to 81.4% in 2009. It was also found that several years of fee payment would be required to match the market price of water rights. The conclusion is that the fee has not been effective in discouraging non-use, since owners tend to pay it rather than forfeit rights whose market price exceeds the fee. Some improvements to the legal design of the instrument are also suggested.