Methodological issues in assessing potential impacts of climate change on agriculture

The purpose of this paper is to discuss how recent developments in the agricultural economics literature could be utilized to advance our understanding of climate change impact and of the potential for adaptation to climate change. The paper begins with a discussion of the economic meaning of impact and adaptation. Noting that analyses of impacts have focused on economic variables such as farm income or value of farm assets, we describe a modeling approach that allows environmental indicators, such as the productivity or value of the ecosystem and its components, to be included in impact assessments. The approach is based on a model of farm-level decisionmaking that represents land-use and crop-specific management decisions, as a function of the spatial heterogeneity of the physical environment, technology, prices of outputs and inputs, and policy variables. Using this model, it is then possible to discuss a number of key issues that arise in modeling impacts of and adaptation to climate change. These issues include the effect of choosing a modeling 'scale' or level of data aggregation; technological innovation and adoption; and changes in economic or environmental policies.