We develop a structural econometric micro-level farmland supply model that is linked to a market-level equilibrium model. The estimation accounts for corner solutions associated with disaggregated land-use data, whose usage enables treating prices as exogenous. The explicit formulation of production and output prices enables the micro-macro linkage, as well as the exploitation of aggregate data so as to assign production interpretation to the estimated coefficients of the micro-level model.
We employ the model for assessing climate-change impacts in Israel, in which agriculture is protected by import tariffs. We find that projected climate changes are beneficial to farmers, particularly due to the positive impact of the forecasted large temperature rise on field-crops production. Fruit outputs are projected to decline, and reduce consumer surpluses, but to a less extent than the increase in total agricultural profits. Nearly 20% of the profit rise is attributed to farmers’ adaptation response through land reallocation. Adaptation to the projected reduction in precipitation by increasing irrigation is found warranted from farmers’ perspective; however, it is not beneficial to society as a whole. Abolishing import tariffs effectively transfers surpluses from producers to consumers, but the overall welfare effect of this policy-change varies across climate scenarios.