Saturday, February 18, 2012

The Ricardian method

The so-called Ricardian method has become quite popular in the last ten years as a way of trying to estimate the potential damage (or gains) to agriculture through climate change. It is usually a cross-sectional regression on land values (price of land per hectare or rent per hectare) and a bunch of exogenous variables. Records such as past wheat yields aren’t included. Then we can measure the impact of a change in a variable such as temperature or precipitation. Control variables, such as strength of the local economy are usually added.

I’ve been doing the same with the arable rents for the southwest of England in the early 19th Century, but with recent meteorological data. There were no weather measurements taken then, and even if climate change has occurred in the period between 1835 and now, the change is likely to have been relative. The regression output is below, but here are some interesting points:

I include variables of interest, such as MARAIN (March rainfall) with their squares. That’s because there is a non-linear relationship. So for March rain, the regular unsquared variable has a negative sign, while the square is positive. The result of the combination on arable rents is a upward curve, meaning more rain was good in March. That is true: farmers want water in the ground to get the plant through to the summer.

But look at July rain. The signs are the opposite way round. The result is a curve, shown above. The recorded range of July rainfall in mm is on the x axis. The y axis is the rent. Some July rain is good, but then at about 52mm, that’s enough, thanks. The plant gets waterlogged and the forthcoming harvest is ruined.

Days of airfrost is fascinating: see the positive sign? Farmers wanted more days of airfrost back in 1835, because that is what killed the pests. No Roundup etc then. For soil, I put in dummies for different levels of clay. The negative signs mean that more clay lowers the rent. This seems counter-intuitive until one realises the connection with rainfall. Heavy clay soils tend to hold the water, generally good, unless you farm in a poorly drained area. Much of the southwest was just that. 

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