A Dynamic Agricultural Production Model Under Climate-Induced Uncertainty and Investment in Adaptive Capacity

Abstract

Climate change poses an increasing threat to global agriculture, especially in developing economies where smallholder farmers experience repeated climate shocks due to their lack of sufficient adaptive capacity. This paper develops a novel dynamic theoretical framework which examines how risk-averse farmers decide between productive capital investments and resilience-building measures when faced with unpredictable climatic events. The model shows how adaptation investments reduce output volatility which results from climate shocks when adaptive capacity is treated as resilience capital. The framework reveals essential trade-offs between short-term productivity and long-term climate resilience while demonstrating how adaptation functions as an intertemporal investment decision. The model shows that adaptation benefits decrease as investments exceed certain points, producing important insights for creating specific climate risk insurance programs. The paper presents future research directions that include behavioral biases and credit constraints, along with spatial externalities and compound environmental stressors. The study provides a forward-looking perspective on agricultural choices under climate uncertainty which connects resilience theory to practical adaptation strategies, thus making it a relevant addition to climate change economics and food security research.