Estimating the effects of weather and climate change on agricultural productivity

Explaining changes in productivity involves explaining changes in output and input quantities. Several economic models can be used for this purpose. This paper considers a model that accounts for weather and output price uncertainty. Changes in productivity are then explained in two steps. First, a stochastic production frontier model is used to decompose a proper productivity index into measures of technical progress, environmental change, technical efficiency change, scale-and-mix efficiency change, and changes in statistical noise. Second, a system of input demand equations is used to further decompose the measure of scale-and-mix efficiency change into a measure of technical progress, a measure of input price change, various measures of changes in expectations, and a measure of changes in allocative efficiency and statistical noise. The methodology is applied to U.S. agricultural data. The effects of weather and climate change on agricultural productivity are found to be small relative to the effects of changes in input prices.