The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random Fluctuations of Weather
Name
MITJPSPGC_Rpt131.pdf
Size
2.48 MB
Format
Adobe PDF
Checksum (MD5)
5faa25aeda2ebecae8b54b395662594e
Author(s)
Deschenes, Olivier.
Greenstone, Michael.
Date Issued
January 2006
Publisher
MIT Joint Program on the Science and Policy of Global Change
Citation
Report no. 131
Series/Report no.
Report no. 131
Abstract
This paper measures the economic impact of climate change on agricultural land in the United States by estimating the effect of the presumably random year-to-year variation in temperature and precipitation on agricultural profits. Using long-run climate change predictions from the Hadley 2 Model, the preferred estimates indicate that climate change will lead to a $1.1 billion (2002$) or 3.4% increase in annual profits. The 95% confidence interval ranges from –$1.8 billion to $4.0 billion and the impact is robust to a wide variety of specification checks, so large negative or positive effects are unlikely. There is considerable heterogeneity in the effect across the country with California’s predicted impact equal to –$2.4 billion (or nearly 50% of state agricultural profits). Further, the analysis indicates that the predicted increases in temperature and precipitation will have virtually no effect on yields among the most important crops. These crop yield findings suggest that the small effect on profits is not due to short-run price increases. The paper also implements the hedonic approach that is predominant in the previous literature. We conclude that this approach may be unreliable, because it produces estimates of the effect of climate change that are very sensitive to seemingly minor decisions about the appropriate control variables, sample and weighting. Overall, the findings contradict the popular view that climate change will have substantial negative welfare consequences for the US agricultural sector.
Description
Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).
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