Weather Shocks and Climate Change

Previous research has shown that weather shocks, i.e. temperature deviations from the long-run normal values, have significant effect on economic outcomes, such as employment or income, even in developed economies such as the United States. This evidence is often interpreted as reflecting limits to adaptation. We document large differences in the sensitivity of economic activity to weather shocks across regions within the US. We interpret these differences as reflecting adaptation choices that regions make given their specific climate. This leads us to use these reduced form estimates to estimate a simple structural model of adaptation. We can then use the model to infer the effect of projected climate change on production. We find that both the median losses and the identity of the losers from climate change vary substantially once adaptation is taken into account.