The Effect Of Market Structure On Adaptation To Climate Change In Agriculture
When assessing climate change impact, adaptation is an important behavioral response to reduce potential risk. But it has been widely recognized that there are barriers to adaptation. And attempts to estimate impacts may be biased when these barriers neglected. Potential barrier on adaptation decision from market structure have not been identified. We develop a theoretical model to evaluate adaptation incentives of farmers under climate change across various market structures. In agricultural production where acreage adjustment is costly, our theoretical model suggests that the “competition effect” plays an important role in determining incentives to adapt. The competition effect in the market may outweigh the production effect and reduce producer incentives to change production practices. Results also suggest that monopolists may have a higher incentive to adapt since the market is under their direct control with less competition even though these incentives are still much smaller than socially optimal levels. In contrast, there can be strategic interactions among players which can lead to inaction (not investing in adaptations) due to the threat of potentially higher competition in other market structures.
|Date of creation:||2010|
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- Svetlana Mizina & Joel Smith & Erwin Gossen & Karl Spiecker & Stephen Witkowski, 1999. "An evaluation of adaptation options for climate change impacts on agriculture in Kazakhstan," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 4(1), pages 25-41, March.
- Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
- 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.
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