The Critical Role of Markets in Climate Change Adaptation

Tuesday, May 15, 2018

Economics Working Paper 18107 

Abstract: This paper summarizes and synthesizes the role of markets in facilitating climate change adaptation. It draws upon the contributions from a workshop on the potential for market based responses to climate change involving 10 economists, political scientists, civil engineers, and policy scholars funded by the Koret Foundation and held at the Hoover Institution, November 7- 8, 2017. The paper explains how market signals encourage adaptation through land markets. It also identifies impediments to critical market signals, provides related policy recommendations, and points to promising new technologies. Urban, coastal, and agricultural land markets provide effective signals of the emerging costs of climate change. These signals encourage adjustments by both private owners and by policy officials in taking preemptive action to reduce costs. In agriculture, they promote consideration of new cropping and tillage practices, seed types, timing, and location of production. They also stimulate use of new irrigation technologies. In urban areas, they motivate new housing construction, elevation, and location away from harm. They channel more efficient use of water and its application to parks and other green areas to make urban settings more desirable with higher temperatures. To be effective, however, land markets must reflect multiple traders and prices must be free to adjust. Where these conditions are not met, land market signals will be inhibited and market-driven adaptation will be reduced. Because public policy is driven by constituent demands, it may not be a remedy. The evidence of the National Flood Insurance Program and federal wildfire response illustrates how politically difficult it may be to adjust programs to be more adaptive.

DOWNLOAD: The Critical Role of Markets in Climate Change Adaptation.pdf