Facebook Pixel

Working Paper Series

Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in the Hedonic A

Authors

  • Michael W. Hanemann, Goldman School of Public Policy, University of California, Berkeley
  • Wolfram Schlenker, University of California at San Diego
  • Anthony C. Fisher¤, University of California at Berkeley

History

  • Goldman School of Public Policy Working Paper (January 2005)

Abstract

There has been a lively debate about the potential impact of global climate change
on U.S. agriculture. Most of the early agro-economic studies predict large damages (see,
for example, Richard M. Adams, 1989; Harry M. Kaiser et al., 1993; and Adams et al.,
1995). In an innovative paper Robert Mendelsohn, William D. Nordhaus and Daigee Shaw
(1994) - hereafter MNS - propose a new approach: using the variation in temperature and
precipitation across U.S. counties to estimate a reduced form hedonic equation with the
value of farmland as the dependent variable. A change in temperature and/or precipitation
is then associated with a change in farmland value which can be interpreted as the impact of
climate change. Adams et al. (1998) characterize the hedonic approach as a spatial analogue
approach, and acknowledge that “the strength of the spatial analogue approach is that
structural changes and farm responses are implicit in the analysis, freeing the analyst from
the burden of estimating the e®ects of climate change on particular region-speci¯c crops and
farmer responses.” On the other hand, one of the potential disadvantages of the hedonic
approach is that it is a partial equilibrium analysis, i.e., agricultural prices are assumed to
remain constant.1 While year-to-year °uctuations in annual weather conditions certainly
have the potential to impact current commodity prices, especially for crops produced only
in a relatively localized area, (such as citrus fruits which are grown mainly in California
and Florida), changes in long-run weather patterns (i.e., changes in climate) might have a
smaller e®ect on commodity prices because of the greater potential for economic adaptation,
particularly shifts in growing regions.2 The hedonic approach as implemented by MNS
predicts that existing agricultural land on average might be more productive and hence result
in bene¯ts for U.S. farmers.3 The hedonic approach has received considerable attention in our
judgment in part because the conclusions are at variance with those of some other studies that suggest warming will lead to damages and in part because of the new methodology.

Although the approach is appealing, it is at the same time vulnerable to problems related
to misspeci¯cation. Several authors have questioned the particular implementation in MNS (William R. Cline,
1996; Robert K. Kaufmann, 1998; Darwin (1999b); and John Quiggin and John K. Horowitz,
1999). Speci¯cally, they suggest that (i) the hedonic approach cannot be used to estimate
dynamic adjustment costs; (ii) the results are not robust across di®erent weighting schemes;
and (iii) the inadequate treatment of irrigation in the analysis might bias the results. The ¯rst
criticism alludes to the fact that some farmers might not ¯nd it pro¯table to switch to new
cropping patterns given their existing crop-speci¯c ¯xed capital. However, climate change
will occur only gradually and most costs can thus be seen as variable. In this paper we focus
on the latter two points, especially the role of irrigation. Previous comments have raised
theoretical concerns about potential sources of misspeci¯cation related to irrigation. We
provide an empirical test. Once irrigation is accounted for, we show that results also become
robust across weighting schemes or models. Elsewhere we extend the analysis in various
directions: construction and use of climate variables tied more closely to agronomic ¯ndings;
development of more accurate measures of both climate and soil conditions; adjustment
for spatial correlation of the error terms in a hedonic regression; and use of recent climate
scenarios that go beyond the traditional assumption of uniform impacts across regions of
a doubling of greenhouse gas concentrations in the atmosphere (Wolfram Schlenker et al.,
2004). We note here that none of the implied changes in the analysis a®ects the arguments
concerning irrigation discussed in this paper.

Download File

Download a PDF (224KB)