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Interannual Climate Variation, Climate Prediction, and Agricultural Trade: the Costs of Surprise versus Variability
Author(s) -
Hallstrom Daniel G.
Publication year - 2004
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2004.00460.x
Subject(s) - autarky , economics , variation (astronomy) , climate change , agriculture , econometrics , surprise , bayesian probability , environmental science , natural resource economics , mathematics , statistics , ecology , psychology , social psychology , physics , astrophysics , welfare , market economy , biology
Agriculture remains sensitive to variation in rainfall and temperature. Fortunately, our ability to predict the lower frequency variation in the earth's atmosphere is increasing rapidly. While information cannot affect the underlying source of variability, it allows unexpected shocks to be anticipated and acted upon. This paper develops and analyzes an intertemporal Ricardian trade model with Bayesian beliefs. Results in this paper show that improved climate prediction reduces expected prices, but increases price variability. In addition, trade is crucial to realizing the potential benefits of climate prediction. The value of climate prediction is highest with both storage and trade, and falls by over 300% when a country is in autarky.