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Accounting for externalities in cross-sectional economic models of climate change impacts

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  • Moretti, Michele
  • Vanschoenwinkel, Janka
  • Van Passel, Steven

Abstract

Environmental effects and natural resources depletion associated with agriculture production affect the agriculture response to climate change. Traditional cross-sectional climate response models ignore this requirement. This research estimates the impact of climate on European agriculture using a continental scale Ricardian analysis. We correct farm income by accounting for resources (energy, fertilisers, pesticides, and water) use intensity and calculate the sustainable value for a sample of 9497 specialized field crop farms. Compared with the traditional Ricardian method, the marginal effects of temperature remain positive (but less positive) in Northern countries, while it leads to less damages in Southern countries when net revenue and farms' sustainable values are used as dependent variables. Accounting for the environmental effects and depletion of natural capital improves the ability of the Ricardian method to estimate agriculture climate response functions in the long run.

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  • Moretti, Michele & Vanschoenwinkel, Janka & Van Passel, Steven, 2021. "Accounting for externalities in cross-sectional economic models of climate change impacts," Ecological Economics, Elsevier, vol. 185(C).
    • Handle: RePEc:eee:ecolec:v:185:y:2021:i:c:s0921800921001166
    DOI: 10.1016/j.ecolecon.2021.107058
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    2. Luis Antonio Galiano Bastarrica & Eva M. Buitrago Esquinas & María Ángeles Caraballo Pou & Rocío Yñiguez Ovando, 2023. "Environmental adjustment of the EU27 GDP: an econometric quantitative model," Environment Systems and Decisions, Springer, vol. 43(1), pages 115-128, March.

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