Adapting to Climate Change: Equilibrium Welfare Implications for Large and Small Economies

We show that the availability of adaptation can be welfare-reducing in the non-cooperative equilibrium in a setting with multiple countries. Adaptation is a private good while abatement is a public good. This means that substitution out of abatement and into adaptation by any one country imposes a negative externality on all other countries. The potentially deleterious impact of adaptation is asymmetric: small economies are most likely to be hurt by the availability of adaptation because they control a small fraction of global emissions relative to the biggest emitters.