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

Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in the Hedonic Approach. Wolfram Schlenker, W. Michael Hanemann, and Anthony C. Fisher ∗ 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 effects of climate change on particular region-specific 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 fluctuations 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 effect 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 benefits 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