Climate change has various impacts in many ways. Yonas Alem and Jonathan Colmer in their paper shows how climate variability is linked with farmers’ subjective welfare. Let see how Alem and Colmer revealed the link.
The paper titled Optimal Expectations and the Welfare Cost of Climate Variability arguing that uncertainty about the future is an important determinant of well-being. It published by School of Business, Economics and Law at University of Gothenburg.
The authors show that increased climate variability (a proxy for future income uncertainty) reduces farmers’ subjective well-being, consistent with the theory of optimal expectations (Brunnermeier & Parker, 2005), using panel data from rural Ethiopia and a new data set containing daily atmospheric parameters.
The magnitude of our result indicates that a one standard deviation (7%) increase in climate variability has an equivalent effect on life satisfaction to a two standard deviation (1-2%) decrease in consumption.
According to the authors, this effect is one of the largest determinants of life satisfaction in rural Ethiopia.
Download the paper here