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Does Directed Innovation Mitigate Climate Damage? Evidence from U.S. Agriculture

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  • Jacob Moscona
  • Karthik A Sastry

Abstract

This article studies how innovation reacts to climate change and shapes its economic impacts, focusing on U.S. agriculture. We show in a model that directed innovation can either mitigate or exacerbate climate change’s potential economic damage depending on the substitutability between new technology and favorable climatic conditions. To empirically investigate the technological response to climate change, we measure crop-specific exposure to damaging extreme temperatures and crop-specific innovation embodied in new variety releases and patents. We find that innovation has redirected since the mid-twentieth century toward crops with increasing exposure to extreme temperatures. Moreover, this effect is driven by types of agricultural technology most related to environmental adaptation. We next show that U.S. counties’ exposure to induced innovation significantly dampens the local economic damage from extreme temperatures. Combining these estimates with the model, we find that directed innovation has offset 20% of potential losses in U.S. agricultural land value due to damaging climate trends since 1960 and that innovation could offset 13% of projected damage by 2100. These findings highlight the vital importance, but incomplete effectiveness, of endogenous technological change as a source of adaptation to climate change.

Suggested Citation

  • Jacob Moscona & Karthik A Sastry, 2023. "Does Directed Innovation Mitigate Climate Damage? Evidence from U.S. Agriculture," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(2), pages 637-701.
  • Handle: RePEc:oup:qjecon:v:138:y:2023:i:2:p:637-701.
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    File URL: http://hdl.handle.net/10.1093/qje/qjac039
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    1. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    2. David B. Lobell & Graeme L. Hammer & Greg McLean & Carlos Messina & Michael J. Roberts & Wolfram Schlenker, 2013. "The critical role of extreme heat for maize production in the United States," Nature Climate Change, Nature, vol. 3(5), pages 497-501, May.
    3. W. Walker Hanlon, 2015. "Necessity Is the Mother of Invention: Input Supplies and Directed Technical Change," Econometrica, Econometric Society, vol. 83, pages 67-100, January.
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    Cited by:

    1. Picchio, Matteo & van Ours, Jan C., 2024. "The impact of high temperatures on performance in work-related activities," Labour Economics, Elsevier, vol. 87(C).
    2. Tian, Ye & Chen, Songbo & Dai, Li, 2024. "How climate risk drives corporate green innovation: Evidence from China," Finance Research Letters, Elsevier, vol. 59(C).
    3. Jennifer Syme & Henry An & Mohammad Torshizi, 2024. "Estimating the effect of time‐invariant characteristics in panel data: wheat adoption in Western Canada," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(2), pages 828-851, March.

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