Pontificia Universidad Católica de Chile Pontificia Universidad Católica de Chile
Vicuña S., Gil M., Melo O., Donoso G. and Merino P. (2018)

Water option contracts for climate change

Revista : Water International
Volumen : 4
Número : 2
Páginas : 237-256
Tipo de publicación : ISI Ir a publicación


Climate change–induced extreme events pose an important challenge for urban water managers. In Santiago (Chile), the total cost of such events can be reduced by an option contract that sets ex ante water prices and water volumes to be traded when certain triggering conditions are met. This article discusses two types of option contracts: water leasing to trade water from agriculture to urban uses during droughts; and a savings option contract to reduce urban water consumption during short-term turbidity events. We find that water option contracts are flexible instruments that improve the distribution of hydrological risks.