Understanding Temperature and Moisture Interactions in the Economics of Climate Change Impacts and Adaptation on Agriculture

Growing econometric and statistical evidence points to high temperature as themain driver of large negative effects of climate change on US agriculture. This literaturealso suggests a limited role for precipitation in overall impacts. This paper shows thisfinding stems from the widespread use of calendar precipitation variables, which poorlyrepresent water availability for rainfed crops. I rely on a state-of-the art dataset withvery high spatial (14km) and temporal (1h) resolution to develop a statistical modeland unpack the effects of temperature and drought stress and analyze their interactions.Using a 31-year panel of corn yields covering 70% of US production, I account fornonlinear effects of soil moisture with varying effects throughout the growing season,in addition to nonlinear temperature effects. I show that yield is highly sensitive tosoil moisture toward the middle of the season around flowering time. Results show that omission of soil moisture leads to overestimation of the detrimental effects oftemperature by 30%. Because climate change affects intra-seasonal soil moisture andtemperature patterns differently, this omission also leads to very different impacts on UScorn yields, with a much greater role for water resources in overall impacts. Under themedium warming scenario (RCP6), models omitting soil moisture overestimate yieldimpacts by almost 100%. The approach shows a more complete understanding thatclimate change impacts on agriculture are likely to be driven by both heat and droughtstresses, and that their relative role can vary depending on the climate change scenarioand farmer ability to adapt.