Economic effects of CO2 fertilization of crops:: transforming changes in yield into changes in supply

Increasing concentrations of atmospheric carbon dioxide (CO2) have a beneficial effect on crop production that would tend to offset some of the economic losses that might be generated in some areas by the climatic effects of atmospheric CO2 and other greenhouse gases. Previous estimates of the economic benefits of CO2 fertilization on world crop production, however, were based on the assumption that percent changes in supply are equal to percent changes in yield. This assumption is not valid, however, because it confounds changes in supply with changes in quantity supplied. This error leads to an overestimation of the real economic benefits of CO2 fertilization by 61-166%. The effects of CO2 fertilization on crop production, therefore, will reduce some of the potential damages caused by the climatic impacts of greenhouse gases, but by significantly less than that indicated in earlier research.