Elgar original reference
Edited by Ariel Dinar and Robert Mendelsohn
Chapter 8: The Impact of Climate Change on US Agriculture: A Repeated Cross-Sectional Ricardian Analysis
Emanuele Massetti and Robert Mendelsohn INTRODUCTION Controlled laboratory and field experiments suggest a hill-shaped relationship between yield and temperature (see Reilly et al., 1996, Mendelsohn and Dinar, 2009). For each crop there is an ideal temperature and precipitation range. Climate that is either warmer or cooler than this optimal range leads to lower yields. Across crops there is a similar relationship that involves both yields and the profitability of each crop. It follows that one should expect a hill-shaped relationship between temperature and gross revenues as well. However, farmers can choose outputs to adapt to different temperatures. They can switch crops, switch livestock, and/or move from crops to livestock. They can also change inputs in response to temperature such as adjusting fertilizer, irrigation and pesticides. Finally, they can adjust management by altering planting and harvest dates or tilling practices as a climate adaptation. All of these choices lead to a less concave net revenue–temperature function than the pure yield–temperature relationship would suggest. By altering inputs, outputs and management, farmers can make their choice set less concave by moving to more advantageous combinations of outputs as well as inputs. A less concave response function implies lower sensitivity to climate change. Agro-economic models consequently overestimate the welfare impact of climate change because they focus on the relationship between climate and yields, holding farmer choices constant. They neglect the possibility that farmers will react to a changing environment by altering their behavior. They mis-estimate the general relationship between net revenue and...