The value of adaption: Climate change and timberland management

Adaptation to exogenous change occurs on both intensive and extensive margins. Whether and how one accounts for human adaptation directly affects estimates of the economic consequences of environmental change, estimates that are both critical in informing policy decisions and notoriously difficult to value. This paper introduces and applies an analytical framework for placing an economic value on adaptation. We explore the issue first in a stylized model that facilitates making concrete generalizations about the kinds of adaptations that generate high or low economic value. We then test the soundness of our insights by incorporating learning and adaptive decision-making into a structural dynamic forestry model where climate change is imposed exogenously and agents respond optimally. Using downscaled climate projections integrated with site- and species-specific timber productivity data, we estimate the economic value of adaptation to climate change within the California timber industry. We find on the intensive margin, changing the rotation intervals will yield a low value of adaptation, but on the extensive margin, replanting more suitable tree species can yield significant value.