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The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random Fluctuations in Weather

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  • Deschenes, Olivier
  • Greenstone, Michael

Abstract

This paper measures the economic impact of climate change on US agricultural land 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.

Suggested Citation

  • Deschenes, Olivier & Greenstone, Michael, 2006. "The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random Fluctuations in Weather," Climate Change Modelling and Policy Working Papers 12065, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemcc:12065
    DOI: 10.22004/ag.econ.12065
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    Cited by:

    1. Michael Greenstone & Justin Gallagher, 2008. "Does Hazardous Waste Matter? Evidence from the Housing Market and the Superfund Program," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 951-1003.
    2. Barrios, Salvador & Ouattara, Bazoumana & Strobl, Eric, 2008. "The impact of climatic change on agricultural production: Is it different for Africa?," Food Policy, Elsevier, vol. 33(4), pages 287-298, August.
    3. Martinsohn, Maria & Hansen, Heiko, 2012. "The Impact of Climate Change on the Economics of Dairy Farming – a Review and Evaluation," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 61(2).
    4. B. Sonneveld & M. Keyzer & P. Adegbola & S. Pande, 2012. "The Impact of Climate Change on Crop Production in West Africa: An Assessment for the Oueme River Basin in Benin," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(2), pages 553-579, January.
    5. Bluedorn, John & Valentinyi, Akos & Vlassopoulos, Michael, 2009. "The Long-Lived Effects of Historic Climate on the Wealth of Nations," CEPR Discussion Papers 7572, C.E.P.R. Discussion Papers.
    6. Orley C. Ashenfelter & Karl Storchmann, 2006. "Using a Hedonic Model of Solar Radiation to Assess the Economic Effect of Climate Change: The Case of Mosel Valley Vineyards," Working Papers 72, Princeton University, Department of Economics, Center for Economic Policy Studies..
    7. Tambi Mbu Daniel, 2019. "Quantifying the Effects of Climate Change on Crop Production," Journal of Social and Economic Statistics, Sciendo, vol. 8(1), pages 26-42, July.
    8. Schlenker, W & Hanemann, WM & Fisher, AC, 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.
    9. José Guillermo Ariza Estévez, 2014. "Impacto sobre el bienestar social atribuido al fenómeno El Niño (ENOS) y al proceso de cambio climático. Un análisis sobre el mercado de energía colombiano," Revista Lebret, Universidad Santo Tomás - Bucaramanga, vol. 6, pages 61-86, December.
    10. Olivier Deschenes & Charles Kolstad, 2011. "Economic impacts of climate change on California agriculture," Climatic Change, Springer, vol. 109(1), pages 365-386, December.
    11. Joelle SAAD-LESSLER & George TSELIOUDIS, 2010. "Storms, Climate Change, And The Us Economy: A National Analysis," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
    12. Jane Kabubo-Mariara & Richard Mulwa, 2019. "Adaptation to climate change and climate variability and its implications for household food security in Kenya," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 11(6), pages 1289-1304, December.
    13. Kahrl, Fredrich & Roland-Holst, David, 2008. "Climate change risk and response," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt79x4k2qd, Department of Agricultural & Resource Economics, UC Berkeley.
    14. Alan I. Barreca, 2010. "The Long-Term Economic Impact of In Utero and Postnatal Exposure to Malaria," Journal of Human Resources, University of Wisconsin Press, vol. 45(4), pages 865-892.
    15. Kenneth Y. Chay & Michael Greenstone, 2005. "Does Air Quality Matter? Evidence from the Housing Market," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 376-424, April.
    16. Joelle SAAD-LESSLER & George TSELIOUDES, 2009. "Storms, Climate Change, and the US Economy: A National Analysis," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 9(1).
    17. Afzal, Muhammad & Ahmed, Gulzar & Javaid, Muhammad Nadeem, 2017. "Empirical Asessment Of Climate Change On Agricultural Crops: Panel Data Analysis In Pakistan," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 5(2), April.
    18. Mukherjee, Monobina & Schwabe, Kurt A., 2014. "Where's the salt? A spatial hedonic analysis of the value of groundwater to irrigated agriculture," Agricultural Water Management, Elsevier, vol. 145(C), pages 110-122.
    19. Asadoorian, Malcolm O. & Eckaus, Richard S. & Schlosser, C. Adam, 2008. "Modeling climate feedbacks to electricity demand: The case of China," Energy Economics, Elsevier, vol. 30(4), pages 1577-1602, July.
    20. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2008. "Climate Change and Economic Growth: Evidence from the Last Half Century," NBER Working Papers 14132, National Bureau of Economic Research, Inc.
    21. Jonathan F. Fox & Price V. Fishback & Paul W. Rhode, 2011. "The Effects of Weather Shocks on Crop Prices in Unfettered Markets: The United States Prior to the Farm Programs, 1895-1932," NBER Chapters, in: The Economics of Climate Change: Adaptations Past and Present, pages 99-130, National Bureau of Economic Research, Inc.
    22. Wolfram Schlenker & Michael J. Roberts, 2008. "Estimating the Impact of Climate Change on Crop Yields: The Importance of Nonlinear Temperature Effects," NBER Working Papers 13799, National Bureau of Economic Research, Inc.
    23. Zeynep K. Hansen & Gary D. Libecap & Scott E. Lowe, 2011. "Climate Variability and Water Infrastructure: Historical Experience in the Western United States," NBER Chapters, in: The Economics of Climate Change: Adaptations Past and Present, pages 253-280, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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