Estimating welfare impacts of climate change using a discrete-choice model of land management: An application to western U.S. forestry

Abstract

This study develops a method to estimate the welfare impacts of climate change on landowners using a discrete-choice econometric model of land management. We apply the method to forest management in the Pacific states of the U.S. and estimate welfare effects on the region that holds the largest current commercial value – western Oregon and Washington. We find evidence that a warmer and drier climate will induce an approximate 39 % loss in the economic value of timberland by 2050, though there is heterogeneity across space. The discrete-choice approach allows us to determine that the welfare losses are primarily driven by estimated losses to Douglas-fir, the most commercially valuable species. An alternative approach to welfare analysis from climate change is the Ricardian method, which gives conceptually similar estimates to the discrete-choice method. While we find similar empirical findings between the discrete-choice and Ricardian approaches, the discrete-choice approach provides more heterogeneity and somewhat larger negative welfare impacts. Our analysis is notable for providing the first empirical evidence that climate change can induce welfare losses to timberland owners, even while accounting for optimal adaptation.