Farmers' Adaptive Investments and Groundwater Resource Impact in a Changing Climate

Julia de Frutos Cachorro () and Lucia Sbragia ()
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Julia de Frutos Cachorro: Universitat de Barcelona, BEAT
Lucia Sbragia: Durham University Business School

No 2024/475, UB School of Economics Working Papers from University of Barcelona School of Economics

Abstract: One of the many effects of Climate Change is increased drought making water availability scarcer in more regions of the world, and primarily affecting the agricultural sector. In this context, we study farmers' adaptation to Climate Change by developing a two-period discretetime theoretical model of exploitation of a groundwater resource that studies the impact of adaptive investments as a response to climate change on farmers' profitability and the sustainability of the groundwater resource. In particular, we consider that the resource users, the farmers, may belong to different groups: adapters and non-adapters, and analytically solve the game under four scenarios: full cooperation, cooperation within groups, cooperation only within adapters and full non-cooperation between all farmers. Theoretical results show that under full cooperation, adaptation is not beneficial for the environment, meaning that lower final stock levels are obtained when farmers adapt compared to when they do not. Those results could also be observed numerically when there are strategic interactions among groups and/or among all farmers, i.e., when farmers do not cooperate. In contrast, numerical results suggest that the impact of adaptation could be positive for the resource and for the overall profits of the farmers when only the adapters are cooperating. Finally, defining the profitability (or scope) of cooperation as the difference between overall profits under full cooperation and noncooperation, preliminary results suggest that the number of investing farmers would be a key element in estimating the scope of cooperation.

Keywords: Groundwater resource; Dynamic game; farmer’s adaptive investments; Climate change (search for similar items in EconPapers)
JEL-codes: C70 Q15 Q25 Q54 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2024
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