NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Olivier Deschenes, Michael Greenstone

NBER Working Paper No. 10663
Issued in August 2004
NBER Program(s):   LS   PR   PE   EEE

This paper measures the economic impact of climate change on US agricultural land. We replicate the previous literature's implementation of the hedonic approach and find that it produces estimates of the effect of climate change that are very sensitive to decisions about the appropriate control variables, sample and weighting. We find estimates of the benchmark doubling of greenhouse gases on agricultural land values that range from a decline of $420 billion (1997$) to an increase of $265 billion, or 30% to 19%. Despite its theoretical appeal, the wide variability of these estimates suggests that the hedonic method may be unreliable in this setting. In light of the potential importance of climate change, this paper proposes a new strategy to determine its economic impact. We estimate the effect of weather on farm profits, conditional on county and state by year fixed effects, so the weather parameters are identified from the presumably random variation in weather across counties within states. The results suggest that the benchmark change in climate would reduce the value of agricultural land by $40 to $80 billion, or 3% to 6%, but the null of zero effect cannot be rejected. In contrast to the hedonic approach, these results are robust to changes in specification. Since farmers can engage in a more extensive set of adaptations in response to permanent climate changes, this estimate is likely downwards biased, relative to the preferred long run effect. Together the point estimates and sign of the likely bias contradict the popular view that climate change will have substantial negative welfare consequences for the US agricultural sector.

download in pdf format
   (679 K)

email paper

This paper is available as PDF (679 K) or via email.

This paper was revised on February 8, 2006

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10663

Published: Deschenes, Olivier and M. Greenstone. "The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random Fluctuations in Weather." American Economic Review 97, 1 (March 2007): 354-385.

Users who downloaded this paper also downloaded these:
Schlenker and Roberts w13799 Estimating the Impact of Climate Change on Crop Yields: The Importance of Nonlinear Temperature Effects
Deschenes and Greenstone w13178 Climate Change, Mortality, and Adaptation: Evidence from Annual Fluctuations in Weather in the US
Pindyck w15692 Modeling the Impact of Warming in Climate Change Economics
Dell, Jones, and Olken w14132 Climate Change and Economic Growth: Evidence from the Last Half Century
Goulder and Pizer w11923 The Economics of Climate Change
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us