A seminar by Dr. Eric Edwards
Friday, April 22 at 3:10pm in UI Hubert room 27

We present a lobby model to explain the adoption and persistence of seemingly costly environmental  policies relative to the likely benefits generated. The arguments of the model are illustrated by water  trade restrictions for mining firms in the Atacama Desert of northern Chile. The area is one of the driest  in the world but also the world’s top copper producer. Due to regulation of access to local water in  the region, firms have begun using desalinated water at a cost of up to $19,542 per m3/day while agricultural  water trades at median price of $343 per m3/day. We explore how governmental maintenance of environmental  and indigenous water supplies through restrictions on water trades causes these large price differentials.  We provide a simple framework that explains how this type of policy can be supported under reasonable  assumptions about lobbying. Interest group lobbying, limited information to unorganized general citizens  about policy costs and benefits, and their associated distribution can lead to strong regulation, even  when the protected environmental areas and agricultural populations are small and isolated. Differencein-  difference modeling of sector prices indicates that after an abrupt increase in regulatory denials,  prices diverged in a manner consistent with the lobbying model. Using market price and desalination  cost data, policy costs are estimated at $6.15 billion dollars or approximately $350 per citizen, which  may or may not equate to perceived general benefits.

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