Economic Implications of Climate Change for Agricultural Productivity

Abstract: - The agriculture sector is highly exposed to climate change and, consequently, to its risks. The climate risk is capable of altering other risks such as asset depletion (damage and loss to assets as a result of extreme climate events), price risks (risk of falling or rising prices) and financial risk (from possible increase of interest rates). Based on the assumption that climate changes indirectly affect the level of income through losses in capital, a Cobb-Douglas production function has been employed, using the different forms of capital as inputs. In particular, using a Cobb-Douglas production function and the marginal rate of technical substitution, the possibility to replace the use of irrigation water with the use of other inputs has come to light. The knowledge of these connections allows both a better use of water resources, and a more efficient use of other productive resources.