Does climate change adaptation decision increase crop revenue and reduce the downside risk exposure?

Multiple previous reports have established that climate change disproportionately impacts smallholder farmers in developing countries. This study investigates the impact of farmers’ decision to adapt to climate change on crop revenue and revenue risk exposure using household surveys from three different agro-ecological regions of Nepal. I utilize a control function approach in an endogenous switching regression framework to account for the self-selection problem due to both observables and unobservables. Identification of the model comes from the spatial variation in access to extension service, road, market, and climate information. I find that adapting to climate change increases crop revenue and reduces revenue risk exposure, while the counterfactual analysis shows the considerable heterogeneities in the outcomes among adapters and non-adapters. Our findings imply that adapting to climate change can be an effective management practice to mitigate the risks associated with climate change and increase resilience.