The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather

TLDR

The study aims to quantify how climate change affects U.S. agricultural profits by analyzing year‑to‑year temperature and precipitation variations. It estimates the effect of random annual weather fluctuations on agricultural profits. The preferred estimates show that climate change will increase annual profits by $1.3 billion in 2002 dollars (4 %) and are robust to many specifications, indicating large negative or positive effects are unlikely, while the hedonic approach proves unreliable due to extreme sensitivity to minor choices.

Abstract

This paper measures the economic impact of climate change on US agricultural land by estimating the effect of random year-to-year variation in temperature and precipitation on agricultural profits. The preferred estimates indicate that climate change will increase annual profits by $1.3 billion in 2002 dollars (2002$) or 4 percent. This estimate is robust to numerous specification checks and relatively precise, so large negative or positive effects are unlikely. We also find the hedonic approach—which is the standard in the previous literature—to be unreliable because it produces estimates that are extremely sensitive to seemingly minor choices about control variables, sample, and weighting. (JEL L25, Q12, Q51, Q54)