Firm Adaptation to Climate Change

We survey the microeconomics literature that studies how firms in the developing world are adapting to extreme weather, local pollution, and natural disasters. Climate change increases the uncertainty that every firm must address as it decides where and how to produce and who to trade with. We study how expectations, market structure and firm heterogeneity determine investment in self-protection. A firm’s resilience also depends on government policies, market insurance access and infrastructure investments. We explore the strategic interactions between firms and governments that together determine firm risk exposure. We discuss benchmarks for measuring adaptation progress at the firm, industry and macroeconomic level.