THE ECONOMICS OF ADAPTATION TO CLIMATE CHANGE IN DEVELOPING COUNTRIES

Abstract

Adaptations are changes in behavior and capital motivated by climate change. Economic theory suggests that adaptations are efficient (desirable) only if their benefit exceeds their cost. Private adaptations are likely to be efficient because the benefits and cost accrue to the decision maker. With some important exceptions, private adaptation is likely to be done efficiently by markets. Public adaptations, however, benefit many people. Markets are not likely to make efficient public adaptations because they cannot coordinate payments from multiple consumers. Governments need to be responsible for public adaptations. However, government must think carefully about being efficient. Empirically, little is known about what precise changes in behavior are efficient, where such changes should take place and when they should take place. The empirical literature has largely focused on how actors have adapted to the current range of climates across the earth. From these studies, researchers are extrapolating what changes would make sense in the future as climate changes. The results suggest that adaptations are local in nature and therefore look like patchwork adjustments across space. They depend on the current local climate, how it changes and the various local conditions. Although public adaptations in health and conservation look promising, there are virtually no economic analyses of their potential. Overall, adaptation can be very effective at reducing damages, for example, by building sea walls to protect from inundation, and seizing new opportunities, for example, by growing in crops in places that were previously too cold. Research must now focus on making the practical steps that turn that potential into reality.