An Economic Analysis of Global Impacts, Adaptation and Distributional Effects
New Horizons in Environmental Economics series
Adaptations are actions that people and firms take in response to climate change to reduce damages or increase benefits (Carter et al. 1994; IPCC 2001; IPCC 2007b; Smith 1997; Smith and Lenhart, 1996). A comprehensive review of the adaptation literature can be found in Kurukulasuriya and Rosenthal (2003). There are three major strands to the adaptation literature: theoretical papers, on-site observations, and cross-sectional empirical studies. This chapter will provide a quick review of these strands and then present the modeling framework used in empirical studies of adaptation that are used in Chapter 9. THEORY OF ADAPTATION The theoretical literature stresses broad but important concepts. For example, efficient adaptations are actions that make actors better off (Fankhauser et al., 1999; Mendelsohn, 2000). Private adaptations are examples where there is only one beneficiary (the actor). Private adaptations will tend to be efficient because it is in the interest of the actor to make the change. As shown in Table 5.1, for example, farmers will switch crops or change planting dates to maximize profit. Public adaptations are examples where there are many beneficiaries. Building dams and canals or protecting endangered species are examples of public adaptations because there are many beneficiaries of these decisions. The market will have trouble making efficient public adaptations because the cost of coordination across multiple beneficiaries is large (especially if the beneficiaries are heterogeneous) (Mendelsohn, 2000, 2006). There is clearly a need for government assistance to champion efficient public adaptation. Efficient adaptation relies on actors having private property...
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