Valuing the costs of climate change for agriculture: The hidden role of land-use adjustments in the Ricardian approach

Francois Bareille

Working Papers from HAL

Abstract: The Ricardian approach is a popular cross-sectional method regressing average farmland rents on climate across regions to assess the value of climate for agriculture. This paper theoretically shows that the Ricardian approach leads to biased estimates when agriculture operates under decreasing returns and competes for land access with other climate-sensitive sectors. Instead, the Ricardian estimates additionally reflect spillovers from non-agricultural sectors which, by adjusting to climate shocks (either by expanding or shrinking), affect regional farmland area and subsequently contaminate average farmland rents. Such situations would be characterized by Ricardian estimates for non-agricultural sectors that are of similar signs than those for agriculture. A simple correction allows us to recover the standard Ricardian interpretation: to regress the product of average farmland rents by regional farmland area - that is, total farmland rents - on climate. We test our approach on original data detailing land rents for agriculture, forest and urban sectors in France. In top of documenting climate-induced land-use changes between agriculture and the other sectors, we find that our Ricardian estimates do present evidence of related biases. Compared to our correction, the Ricardian approach significantly underestimates the projected climate change costs for agriculture and the other sectors.

Keywords: adaptation; climate damage; land markets; land-use changes; hedonic valuation; sorting (search for similar items in EconPapers)
Date: 2024-10-07
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