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Weather Fluctuations, Expectation Formation, and Short-Run Behavioral Responses to Climate Change

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  • Xinde Ji

    (Brandeis University)

  • Kelly M. Cobourn

    (Virginia Tech)

Abstract

One premise adopted in most previous studies is that weather fluctuations affect economic outcomes contemporaneously. Yet under certain circumstances, the impact of weather fluctuations in the current year can be carried over into the future. Using agricultural production as an example, we empirically investigate how past weather fluctuations affect economic decision-making by shifting agents’ subjective expectations over future climate. We find that agricultural producers do not form expectations on future climate using only long-run normals, and instead engage in a combination of heuristics, including the availability heuristic and the reinforcement strategy. Adopting these learning mechanisms causes farmers to significantly over-react to more recent fluctuations in weather and water availability when making ex ante acreage and crop allocation decisions.

Suggested Citation

  • Xinde Ji & Kelly M. Cobourn, 2021. "Weather Fluctuations, Expectation Formation, and Short-Run Behavioral Responses to Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 77-119, January.
    • Handle: RePEc:kap:enreec:v:78:y:2021:i:1:d:10.1007_s10640-020-00525-x
    DOI: 10.1007/s10640-020-00525-x
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    More about this item

    Keywords

    Weather fluctuation; Climate change adaptation; Expectation formation; Agricultural production;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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