<i>¿Libre de la Maleza Estatista?</i> Assessing Neoliberal Promises and Water Markets in Chile

Abstract Neoliberal approaches to water governance, pioneered in Chile in the 1980s, are reappearing today on the centerstage of the water policy debate. While advocates claim that strong property rights, limits on government authority, and water markets can enhance environmental sustainability, efficiency, neutrality, and equity in the distribution of water rights, limited empirical evidence exists on whether neoliberal policies have delivered on these key promises. In this paper, we combine hydrological analysis with a nationwide data set on government water rights allocations between 1981 and 2021 to determine when and where water has been allocated beyond sustainable limits. We then integrate water market transaction and agricultural data to assess how allocations and scarcity conditions relate to spatial and temporal patterns in irrigation, crop distribution, and water market activity. Our results indicate that 30% of catchments are overallocated, and that continued government allocations of water rights during scarcity exacerbate already‐high inequalities in the distribution of water. We find no evidence that scarcity or water markets induced improvements in numerous efficiency metrics. Overall, our results support growing claims that the neoliberal water model fails to fulfill its key promises, notably to the detriment of nature and marginalized rural communities.