An Economic Analysis of Global Impacts, Adaptation and Distributional Effects
New Horizons in Environmental Economics series
This chapter blends the insight of the traditional Ricardian model (Chapter 4) and the explicit adaptation model (Chapter 5) into a powerful tool that captures both changes in expected income from and adaptation to climate change. The combined tool is named a ‘Structural Ricardian model’ (Seo and Mendelsohn, 2008). This multiple stage model first estimates farm choices and then estimates the conditional income for each choice. The model uses cross-sectional evidence to measure not only the adaptive choices made by farmers but also how climate change affects expected income. As stated in Chapter 4, the traditional Ricardian approach can estimate the expected effect of climate on farm land value or net revenue (Mendelsohn et al., 1994; Kurukulasuriya et al., 2006). However, the traditional Ricardian model does not provide insight into how farmers adapt to climate because adaptation is treated endogenously. The reduced form analysis treats farm decision as a ‘black box’ that is not visible to the analyst. In order to learn about adaptation, one must get beneath the Ricardian locus of profit maximizing combinations of choices and begin to distinguish each choice by a farmer and the consequences of each choice on profit. The Structural Ricardian model is attempting to estimate the underlying choice model that leads to the traditional Ricardian locus. One suggestion in the spirit of the Structural Ricardian model is to estimate a separate Ricardian regression for rainfed and for irrigated land (Schlenker et al., 2005). The regression would distinguish the climate sensitivity of these two...
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