HURRY UP OR WAIT: ARE PRIVATE INVESTMENTS IN CLIMATE CHANGE ADAPTATION DELAYED?

Adaptation gaps arise when observed adaptation to climate change is slower than perceived adaptation potential. Two common explanations for adaptation gaps are (1) private parties failing to recognize that the climate is changing and (2) the cost of adaptation is higher than commonly believed. This paper shows how these two explanations are linked and that the likelihood and duration of adaptation gaps depend on whether climate change is characterized by stationary or non-stationary dynamics. Using an investment in water-saving irrigation in California’s Central Valley as an illustrative example, we find little evidence that failing to account for climate change would explain adaptation gaps. A more likely explanation for adaptation gaps is a failure to account for the adaptation option value that arises due to the possibility of maladaptation.