IDEAS home Printed from https://ideas.repec.org/p/ags/aaea18/274473.html
   My bibliography  Save this paper

Weather Fluctuation, Expectation Formation, and the Short-run Behavioral Responses to Climate Change

Author

Listed:
  • Ji, Xinde
  • Cobourn, Kelly M.

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ji, Xinde & Cobourn, Kelly M., 2018. "Weather Fluctuation, Expectation Formation, and the Short-run Behavioral Responses to Climate Change," 2018 Annual Meeting, August 5-7, Washington, D.C. 274473, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea18:274473
    DOI: 10.22004/ag.econ.274473
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/274473/files/Abstracts_18_06_05_12_53_38_21__24_131_5_89_0.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.274473?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2012. "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 66-95, July.
    2. Elodie Blanc & Wolfram Schlenker, 2017. "The Use of Panel Models in Assessments of Climate Impacts on Agriculture," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(2), pages 258-279.
    3. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
    4. Yao-Min Chiang & David Hirshleifer & Yiming Qian & Ann E. Sherman, 2011. "Do Investors Learn from Experience? Evidence from Frequent IPO Investors," Review of Financial Studies, Society for Financial Studies, vol. 24(5), pages 1560-1589.
    5. Trudy Cameron, 2005. "Updating Subjective Risks in the Presence of Conflicting Information: An Application to Climate Change," Journal of Risk and Uncertainty, Springer, vol. 30(1), pages 63-97, January.
    6. Jingyun Zheng & Lingbo Xiao & Xiuqi Fang & Zhixin Hao & Quansheng Ge & Beibei Li, 2014. "How climate change impacted the collapse of the Ming dynasty," Climatic Change, Springer, vol. 127(2), pages 169-182, November.
    7. Olivier Deschênes & Michael Greenstone, 2011. "Climate Change, Mortality, and Adaptation: Evidence from Annual Fluctuations in Weather in the US," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 152-185, October.
    8. Xinde Ji & Kelly M. Cobourn, 2018. "The Economic Benefits of Irrigation Districts under Prior Appropriation Doctrine: An Econometric Analysis of Agricultural Land‐Allocation Decisions," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 66(3), pages 441-467, September.
    9. Ding, Ya & Schoengold, Karina & Tadesse, Tsegaye, 2009. "The Impact of Weather Extremes on Agricultural Production Methods: Does Drought Increase Adoption of Conservation Tillage Practices?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(3), pages 1-17, December.
    10. Steven Buck & Maximilian Auffhammer & David Sunding, 2014. "Land Markets and the Value of Water: Hedonic Analysis Using Repeat Sales of Farmland," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(4), pages 953-969.
    11. Mendelsohn, Robert & Nordhaus, William D & Shaw, Daigee, 1994. "The Impact of Global Warming on Agriculture: A Ricardian Analysis," American Economic Review, American Economic Association, vol. 84(4), pages 753-771, September.
    12. Tatyana Deryugina, 2013. "How do people update? The effects of local weather fluctuations on beliefs about global warming," Climatic Change, Springer, vol. 118(2), pages 397-416, May.
    13. Monobina Mukherjee & Kurt Schwabe, 2015. "Irrigated Agricultural Adaptation to Water and Climate Variability: The Economic Value of a Water Portfolio," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(3), pages 809-832.
    14. Wolfram Schlenker & W. Michael Hanemann & Anthony C. Fisher, 2005. "Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in the Hedonic Approach," American Economic Review, American Economic Association, vol. 95(1), pages 395-406, March.
    15. David B. Lobell & Graeme L. Hammer & Greg McLean & Carlos Messina & Michael J. Roberts & Wolfram Schlenker, 2013. "The critical role of extreme heat for maize production in the United States," Nature Climate Change, Nature, vol. 3(5), pages 497-501, May.
    16. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
    17. Tatyana Deryugina & Laura Kawano & Steven Levitt, 2018. "The Economic Impact of Hurricane Katrina on Its Victims: Evidence from Individual Tax Returns," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 202-233, April.
    18. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
    19. Cui, Xiaomeng, 2020. "Climate change and adaptation in agriculture: Evidence from US cropping patterns," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    20. Harrison Fell & Daniel T. Kaffine, 2018. "The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 90-116, May.
    21. Ajita Atreya & Susana Ferreira & Warren Kriesel, 2013. "Forgetting the Flood? An Analysis of the Flood Risk Discount over Time," Land Economics, University of Wisconsin Press, vol. 89(4), pages 577-596.
    22. Carlo Fezzi & Ian Bateman, 2015. "The Impact of Climate Change on Agriculture: Nonlinear Effects and Aggregation Bias in Ricardian Models of Farmland Values," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(1), pages 57-92.
    23. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    24. Moore, Michael R. & Negri, Donald H., 1992. "A Multicrop Production Model Of Irrigated Agriculture, Applied To Water Allocation Policy Of The Bureau Of Reclamation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(1), pages 1-15, July.
    25. Bryan Leonard & Gary D. Libecap, 2016. "Collective Action by Contract: Prior Appropriation and the Development of Irrigation in the Western United States," NBER Working Papers 22185, National Bureau of Economic Research, Inc.
    26. Justin Gallagher, 2014. "Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States," American Economic Journal: Applied Economics, American Economic Association, vol. 6(3), pages 206-233, July.
    27. Avery S. Cohn & Leah K. VanWey & Stephanie A. Spera & John F. Mustard, 2016. "Cropping frequency and area response to climate variability can exceed yield response," Nature Climate Change, Nature, vol. 6(6), pages 601-604, June.
    28. Kala, Namrata & Kurukulasuriya, Pradeep & Mendelsohn, Robert, 2012. "The impact of climate change on agro-ecological zones: evidence from Africa," Environment and Development Economics, Cambridge University Press, vol. 17(6), pages 663-687, December.
    29. Lee, Gi-Eu & Rollins, Kimberly S. & Singletary, Loretta, 2017. "An Empirical Analysis of Water Allocation Efficiency through the Prior Appropriation Doctrine: A Case Study in the Carson River Valley, Nevada," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258225, Agricultural and Applied Economics Association.
    30. Iyigun, Murat & Nunn, Nathan & Qian, Nancy, 2017. "Winter is Coming: The Long-Run Effects of Climate Change on Conflict, 1400-1900," IZA Discussion Papers 10475, Institute of Labor Economics (IZA).
    31. Olivier Deschênes & Michael Greenstone, 2007. "The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather," American Economic Review, American Economic Association, vol. 97(1), pages 354-385, March.
    32. Seo, S. Niggol & Mendelsohn, Robert, 2008. "An analysis of crop choice: Adapting to climate change in South American farms," Ecological Economics, Elsevier, vol. 67(1), pages 109-116, August.
    33. Dale T. Manning & Christopher Goemans & Alexander Maas, 2017. "Producer Responses to Surface Water Availability and Implications for Climate Change Adaptation," Land Economics, University of Wisconsin Press, vol. 93(4), pages 631-653.
    34. David Konisky & Llewelyn Hughes & Charles Kaylor, 2016. "Extreme weather events and climate change concern," Climatic Change, Springer, vol. 134(4), pages 533-547, February.
    35. Matthew Rabin, 2002. "Inference by Believers in the Law of Small Numbers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 775-816.
    36. Avraham Ebenstein & Victor Lavy & Sefi Roth, 2016. "The Long-Run Economic Consequences of High-Stakes Examinations: Evidence from Transitory Variation in Pollution," American Economic Journal: Applied Economics, American Economic Association, vol. 8(4), pages 36-65, October.
    37. Schlenker, Wolfram & Hanemann, W Michael & Fisher, Anthony C, 2007. "Water Availability, Degree Days, and the Potential Impact of Climate Change on Irrigated Agriculture in California," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt8q8309qn, Department of Agricultural & Resource Economics, UC Berkeley.
    38. David M. Konisky & Llewelyn Hughes & Charles H. Kaylor, 2016. "Extreme weather events and climate change concern," Climatic Change, Springer, vol. 134(4), pages 533-547, February.
    39. Browne, Oliver R., 2017. "Do Secure Property Rights Affect Resource Allocation and Firm Production? Evidence from Water Right Adjudications in Idaho," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258498, Agricultural and Applied Economics Association.
    40. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    41. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    42. Nathan P. Hendricks, 2018. "Potential Benefits from Innovations to Reduce Heat and Water Stress in Agriculture," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(3), pages 545-576.
    43. Ruiqing Miao & Madhu Khanna & Haixiao Huang, 2016. "Responsiveness of Crop Yield and Acreage to Prices and Climate," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(1), pages 191-211.
    44. Jinxia Wang & Robert Mendelsohn & Ariel Dinar & Jikun Huang, 2010. "How Chinese Farmers Change Crop Choice To Adapt To Climate Change," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 167-185.
    45. Gi-Eu Lee & Scott Loveridge & Julie A. Winkler, 2018. "The Influence of an Extreme Warm Spell on Public Support for Government Involvement in Climate Change Adaptation," Annals of the American Association of Geographers, Taylor & Francis Journals, vol. 108(3), pages 718-738, May.
    46. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 373-416.
    47. Auffhammer, Maximilian & Schlenker, Wolfram, 2014. "Empirical studies on agricultural impacts and adaptation," Energy Economics, Elsevier, vol. 46(C), pages 555-561.
    48. Daniel A. Brent, 2017. "The Value of Heterogeneous Property Rights and the Costs of Water Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(1), pages 73-102.
    49. Gary Charness & Dan Levin, 2005. "When Optimal Choices Feel Wrong: A Laboratory Study of Bayesian Updating, Complexity, and Affect," American Economic Review, American Economic Association, vol. 95(4), pages 1300-1309, September.
    50. Marshall Burke & Kyle Emerick, 2016. "Adaptation to Climate Change: Evidence from US Agriculture," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 106-140, August.
    51. Ji, Xinde & Cobourn, Kelly M. & Weng, Weizhe, 2018. "The Effect of Climate Change on Irrigated Agriculture: Water-Temperature Interactions and Adaptation in the Western U.S," 2018 Annual Meeting, August 5-7, Washington, D.C. 274306, Agricultural and Applied Economics Association.
    52. Dave Donaldson & Adam Storeygard, 2016. "The View from Above: Applications of Satellite Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 171-198, Fall.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmed, Musa Hasen & Tesfaye, Wondimagegn Mesfin & Gassmann, Franziska, 2022. "Within Growing Season Weather Variability and Land Allocation Decisions: Evidence from Maize Farmers in Ethiopia," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321171, Agricultural Economics Society - AES.
    2. Joey Blumberg & Christopher Goemans & Dale Manning, 2022. "Perceived Water Scarcity and Irrigation Technology Adoption," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 173-201, National Bureau of Economic Research, Inc.
    3. Ghadir Asadi & Mohammad H. Mostafavi-Dehzooei, 2022. "The Role of Learning in Adaptation to Technology: The Case of Groundwater Extraction," Sustainability, MDPI, vol. 14(12), pages 1-37, June.
    4. Ahmed, Musa Hasen & Tesfaye, Wondimagegn & Stephan, Dietrich & Gassmann, Franziska, 2021. "Within Growing Season Weather Variability and Adaptation in Agriculture: Evidence from Cropping Patterns of Ethiopia," 2021 Conference, August 17-31, 2021, Virtual 315056, International Association of Agricultural Economists.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ji, Xinde & Cobourn, Kelly M. & Weng, Weizhe, 2018. "The Effect of Climate Change on Irrigated Agriculture: Water-Temperature Interactions and Adaptation in the Western U.S," 2018 Annual Meeting, August 5-7, Washington, D.C. 274306, Agricultural and Applied Economics Association.
    2. Ariel Ortiz-Bobea, 2021. "Climate, Agriculture and Food," Papers 2105.12044, arXiv.org.
    3. Xinde Ji & Kelly M. Cobourn, 2018. "The Economic Benefits of Irrigation Districts under Prior Appropriation Doctrine: An Econometric Analysis of Agricultural Land‐Allocation Decisions," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 66(3), pages 441-467, September.
    4. Cui, Xiaomeng, 2020. "Climate change and adaptation in agriculture: Evidence from US cropping patterns," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    5. Bareille, François & Chakir, Raja, 2023. "The impact of climate change on agriculture: A repeat-Ricardian analysis," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    6. Severen, Christopher & Costello, Christopher & Deschênes, Olivier, 2018. "A Forward-Looking Ricardian Approach: Do land markets capitalize climate change forecasts?," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 235-254.
    7. Emediegwu, Lotanna E. & Ubabukoh, Chisom L., 2023. "Re-examining the impact of annual weather fluctuations on global livestock production," Ecological Economics, Elsevier, vol. 204(PA).
    8. Ji, Xinde & Cobourn, Kelly M., 2017. "Water Availability, Land Allocation, and the Role of Irrigation Districts under Prior Appropriation Doctrine," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258377, Agricultural and Applied Economics Association.
    9. Pierre Mérel & Matthew Gammans, 2021. "Climate Econometrics: Can the Panel Approach Account for Long‐Run Adaptation?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1207-1238, August.
    10. Ahmed, Musa Hasen & Tesfaye, Wondimagegn Mesfin & Gassmann, Franziska, 2022. "Within Growing Season Weather Variability and Land Allocation Decisions: Evidence from Maize Farmers in Ethiopia," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321171, Agricultural Economics Society - AES.
    11. Musa Hasen Ahmed & Wondimagegn Mesfin Tesfaye & Franziska Gassmann, 2023. "Early growing season weather variation, expectation formation and agricultural land allocation decisions in Ethiopia," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(1), pages 255-272, February.
    12. Emediegwu, Lotanna E. & Wossink, Ada & Hall, Alastair, 2022. "The impacts of climate change on agriculture in sub-Saharan Africa: A spatial panel data approach," World Development, Elsevier, vol. 158(C).
    13. Badi H. Baltagi & Georges Bresson & Anoop Chaturvedi & Guy Lacroix, 2022. "Robust Dynamic Space-Time Panel Data Models Using ε-contamination: An Application to Crop Yields and Climate Change," Center for Policy Research Working Papers 254, Center for Policy Research, Maxwell School, Syracuse University.
    14. Meyer, Kevin Michael, 2017. "Three essays on environmental and resource economics," ISU General Staff Papers 201701010800006585, Iowa State University, Department of Economics.
    15. Cui, X., 2018. "Adaptation to Climate Change: Evidence from US Acreage Response," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277094, International Association of Agricultural Economists.
    16. Xun Su & Minpeng Chen, 2022. "Econometric Approaches That Consider Farmers’ Adaptation in Estimating the Impacts of Climate Change on Agriculture: A Review," Sustainability, MDPI, vol. 14(21), pages 1-23, October.
    17. Taraz, Vis, 2018. "Can farmers adapt to higher temperatures? Evidence from India," World Development, Elsevier, vol. 112(C), pages 205-219.
    18. Badi H. Baltagi & Georges Bresson & Anoop Chaturvedi & Guy Lacroix, 2023. "Robust dynamic space–time panel data models using $$\varepsilon $$ ε -contamination: an application to crop yields and climate change," Empirical Economics, Springer, vol. 64(6), pages 2475-2509, June.
    19. Zeilinger, Julian & Niedermayr, Andreas & Quddoos, Abdul & Kantelhardt, Jochen, 2021. "Identifying the Extent of Farm-Level Climate Change Adaptation," 2021 Conference, August 17-31, 2021, Virtual 315233, International Association of Agricultural Economists.
    20. Kelly M. Cobourn & Xinde Ji & Siân Mooney & Neil F. Crescenti, 2022. "The effect of prior appropriation water rights on land‐allocation decisions in irrigated agriculture," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(3), pages 947-975, May.

    More about this item

    Keywords

    Risk and Uncertainty; Natural Resource Economics; Resource and Environmental Policy Analysis;
    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea18:274473. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.