Climate, Drought Exposure, and Technology Adoption: An Application to Drought-Tolerant Corn in the United States

Crop farmers have few short-run options for reducing downside production risk from changes in drought frequency and intensity due to ongoing climate change. However, one recently available option is drought-tolerant (DT) varieties. We determine how recent drought exposure, drought risk, and other climatic features have influenced adoption of DT corn—a water-intensive crop of particular economic importance due to its large share of US agricultural value. Our empirical analysis is motivated by a state-contingent economic framework that accommodates farmers' beliefs about future drought based on objective drought risk and exposure. Using a representative sample of US farmers' fields, we implement a novel econometric method, spatial first differences, that can reduce concerns of omitted variables bias. We find that long-run temperatures and drought risk—rather than short-run drought exposure in recent prior years—led to increased adoption of DT corn varieties in 2016. Farmers are more likely to plant DT corn on highly erodible land and less likely to irrigate such varieties, consistent with the fact that the western Corn Belt was of major marketing focus during the early years of commercialization.