Rajat Kochhar, University of Chicago

What role do competition-distorting government policies play in impeding farmers’ adaptation to climate shocks? We study this question in the context of India, which is expected to experience a significant increase in heat exposure and vulnerability to crop losses, and where longer-run adaptation to climate change has been inadequate — posing a considerable risk to its ∼250 million agricultural workers. We exploit spatial discontinuities in intermediary market power, created by state-level laws that restrict farmer-intermediary transactions to the same state, to determine how spatial competition affects farmers’ adaptation. We find that a farmer selling in the 75th percentile of the competition index compared to one that faces the 25th percentile of the competition index achieves a 4.9 percent higher output for each additional day of extreme heat. This effect is driven by increased input usage by farmers in high competition areas, in anticipation of higher prices after climate shocks. We then propose and estimate a quantitative spatial trade model with intermediary market power to examine the welfare implications of higher competition for long-run adaptation. Our structural estimates suggest that economic losses due to climate change could be mitigated by 13.8 percent if distortionary government regulations are dismantled. These results highlight the important role of institutions and political economy in accelerating climate change adaptation.