Modeling the Structure of Adaptation in Climate Change Impact Assessment

While a major focus of econometric climate impact assessments on agriculture has been prediction of overall impacts, future research should identify impact mechanisms and adaptation possibilities. Clarifying specific adaptation possibilities facilitates not only the assessment of potential welfare impacts, but also offers the possibility of evaluating policies for improved adaptation. This depends on capturing mechanisms that provide farmers’ abilities to adapt to new climatic constraints in counter-factual conditions. These impact mechanisms are represented with elaborate detail in agronomic crop models that convey the science of crop production. However, the agronomic models are not well integrated with revealed preferences (e.g., Adams 1989, Adams et al. 1990, Easterling et al. 1992, Rosenzweig and Parry 1994). Thus, congruence of agronomic adaptation possibilities with economic behavior that might be observed in counterfactual circumstances is open to question. Econometric methods have attempted to represent adaptation implicitly by estimating reduced-form relationships between economic variables and arbitrary forms of aggregate weather measures. Leading examples include the Ricardian approach based on cross-section regression of land prices on weather variables (Mendelsohn, Nordhaus, and Shaw 1994 and Schlenker, Hanemann, and Fisher 2005, henceforth MNS and SHF) and the profit panel approach consisting of fixed-effects regressions of net annual revenue on weather variables (Deschênes and Greenstone 2007, henceforth