A farmer's view of the Ricardian approach to measuring agricultural effects of climatic change

During the past few years two new methods, each based on the analogous regi on concept, have been developed to account for farmer adaptation in respons e to global climatic change. The first, called `Ricardian' by Mendelsohn, N ordhaus, and Shaw (1994), econometrically estimates the impact of climatic and other variables on the value of farm real estate. Under some conditions , estimates of climate-induced changes in farm real estate capture first-ro und adaptations by farmers and represent the economic value of climatic cha nge on agriculture. The second method, promulgated by Darwin et al. (1994) in the Future Agricultural Resources Model (FARM), uses a geographic inform ation system to empirically link climatically derived land classes with oth er inputs and agricultural outputs in an economic model of the world. FARM provides estimates of economic impacts that fully account for all responses by economic agents under global climate change as well as estimates of Ric ardian rents. The primary objective of this analysis is to evaluate how well changes in R icardian rents measure agricultural or other effects of climatic change aft er all economic agents around the world have responded. Results indicate th at changes in Ricardian rents on agricultural land are poor quantitative, b ut good qualitative, measures of how global climatic change is likely to af fect the welfare of agricultural landowners, if one recognizes that increas es in Ricardian rents actually indicate losses in landowner welfare and vic e versa. Results also indicate that regional changes in Ricardian rents on all land are good qualitative measures of changes in regional welfare. They are poor quantitative welfare measures because they systematically overest imate both benefits and losses and are on average upwardly biased because i nflated benefits are larger than exaggerated losses. Results also indicate that, when based on existing land-use patterns, changes in Ricardian rents on all the world's land are poor quantitative and qualitative measures of c hanges in world welfare. Despite these shortcomings, changes in Ricardian rents can provide useful i nformation when other measures are not available. In this analysis, for exa mple, estimated changes in Ricardian rents on all land indicate that climat ic change would likely have detrimental effects in Latin America and Africa , beneficial effects in the former Soviet Union, and either detrimental or beneficial impacts in eastern and northern Europe and western and southern Asia. This is consistent with previous studies showing that climatic change would likely have detrimental, beneficial, and mixed effects on economic w elfare in, respectively, equatorial, high latitude, and temperate areas. Es timated changes in Ricardian rents also indicate that aggregating Africa, L atin America, the former Soviet Union, eastern and northern Europe, and wes tern and southern Asia into one region causes FARM's economic model to gene rate upwardly biased changes in world welfare. Modified results from scenar ios with moderately flexible land-use change and which account for current land-use patterns indicate that world welfare may increase if the average s urface land temperature does not increase by more than 1.0 or 2.0 degrees C . If the average surface land temperature increases by 3.0 degrees C or mor e, however, then world welfare may decline.