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Adaptive capacity deficits and adaptive capacity of economic systems in climate
change vulnerability assessment
Tim Williamson a,⁎, Hayley Hesseln b,1, Mark Johnston c,2
a
b
c
Natural Resources Canada, Canadian Forest Service, 5320-122 st, Edmonton, AB, Canada T6H 3S5
University of the Arctic at University of Saskatchewan, 51 Campus Drive, Saskatoon, SK, Canada S7N 5A8
Saskatchewan Research Council, 125 15 Innovation Blvd., Saskatoon, SK, Canada S7N 2X8
a r t i c l e
i n f o
Available online xxxx
Keywords:
Climate change
Vulnerability
Economic efficiency
Equity
Adaptive capacity
Adaptive capacity deficit
Market failure
Irrational behaviour
Institutional failure
Economic systems
a b s t r a c t
This paper considers two ways that economic concepts inform adaptive capacity assessments within the
context of climate change vulnerability analysis. First, using an economics framework, there are rational and
logical reasons why different individuals and different organized human systems have different levels of
adaptive capacity and these differences do not necessarily correlate to differences in vulnerability. An
alternative approach is to determine where there are factors leading to socially inequitable or economically
sub-optimal investment in adaptive capacity assets or reduced effectiveness of adaptive capacity assets
resulting in adaptive capacity deficits. Factors contributing to adaptive capacity deficits include cases of
irrational agent behaviour and cases where there are political, social, and economic system failures. A second
way current adaptive capacity constructs can be enhanced is by taking explicit account of the adaptive
capacity of economic systems. Economic system properties such as scale, diversity, relative mix of the private
and public sectors, innovation, organizational/managerial capital, substitutability of inputs, factor mobility,
liquidity of assets, etc. will affect the capacity of economic systems to adapt.
Crown Copyright © 2010 Published by Elsevier B.V. All rights reserved.
1. Introduction
Climate change has important implications for forests and organized
human systems that are associated with forest resources (Williamson
et al., 2009). Adaptation has the potential to reduce impacts; however,
before adaptation can proceed an understanding of forest sector
vulnerabilities is required (Johnston and Williamson, 2007). The
vulnerability of organized human systems to current and future climate
change is a function of exposure, sensitivity, and adaptive capacity
(Fussel and Klein, 2006). This paper explores two areas where
economics can inform and enhance current approaches to determining
and interpreting adaptive capacity in the context of climate change
vulnerability assessment. First, the paper proposes a complementary
construct — namely, adaptive capacity deficits. Adaptive capacity
deficits are an extension of the concept of adaptation deficit proposed
by Burton (2004) and Burton and May (2004). Different human systems
have different levels of adaptive capacity and these differences are
normal and expected. Differences in adaptive capacity can arise because
of differences in requirement (or demand), supply (or cost), and
income. Therefore, determinations of relatively high or low adaptive
⁎ Corresponding author. Tel.: +1 780 435 7372.
E-mail addresses: [email protected] (T. Williamson), [email protected]
(H. Hesseln), [email protected] (M. Johnston).
1
Tel.: +1 306 966 8407.
2
Tel.: +1 306 933 8175.
capacity for a particular system does not necessarily mean that the
system is relatively less or more vulnerable to climate change effects
compared to other systems. A more direct approach is to determine
where circumstances result in socially unacceptable distributions of
adaptive capacity, or economically sub-optimal investment in adaptive
capacity, or reduced efficacy of current adaptive capacity assets.
Inequity, economic inefficiency, and reduced efficacy are symptoms of
a system that is experiencing an adaptive capacity deficit. Adaptive
capacity deficits are caused by irrational choices and system (economic,
social, institutional, political) failures and it is the manifestation of
adaptive capacity deficits that causes a system to be vulnerable.
A second area where economics can contribute to current
approaches is by more directly incorporating properties affecting the
adaptive capacity of economic systems into broader adaptive capacity
constructs. The current focus of adaptive/community capacity
approaches is mainly on social determinants and socially organized
systems (e.g. resource-based communities). However, local economies
will also be impacted by climate change and the response of economies
and their inherent capacity to adapt will have a significant effect on the
overall adaptive capacity of integrated social and economic systems.
However, features and properties of economies that affect their capacity
to adapt (e.g. relative roles of markets vs. public intervention, market
efficiency and failure, economic diversity, the nature of technologies,
substitution elasticity, scale, flexibility, location or remoteness, potential
differences between short- and long-term adaptive capacity) are
generally not included in current constructs.
1389-9341/$ – see front matter. Crown Copyright © 2010 Published by Elsevier B.V. All rights reserved.
doi:10.1016/j.forpol.2010.04.003
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2. Current constructs for adaptive capacity assessment
The Intergovernmental Panel on Climate Change defines adaptive
capacity as “…the degree to which adjustments in practices, processes,
or structures can moderate or offset the potential for damage or take
advantage of opportunities created by a given change in climate” (IPCC,
2001). This definition is relatively unambiguous. There are, however,
various approaches pertaining to how adaptive capacity and community
capacity are applied and measured. Current mainstream constructs can
arguably be grouped into two broad categories: the general approach
and the community capacity approach.
2.1. General approach
The Intergovernmental Panel on Climate Change Third and Fourth
Assessment reports (Smit and Pilifosova, 2001; Adger et al., 2007;
Klein et al., 2007) present a general approach to adaptive capacity
assessment that relies on the assessment of determinants.
Smit and Pilifosova (2001) suggest that economic resources,
availability of technological options, information capture and management skills, infrastructure, institutions, and equity constitute the key
determinants of adaptive capacity. Numerous authors have proposed
additional and/or alternative measures and indicators of adaptive
capacity. Adger et al. (2004), for example, suggest that specific
indicators and measures of adaptive capacity include wealth, inequality,
educational commitment, isolation of rural communities, quality of
basic infrastructure, political influence, willingness to invest in
adaptation, and environmental sustainability measures. Yohe and Tol
(2002) introduce human and social capital, access to risk spreading
mechanisms, and perceptions of risk as determinants of adaptive
capacity.
The Fourth Assessment Report (FAR) (Adger et al., 2007; Klein et al.,
2007) reflects a growing literature on adaptive capacity and presents a
more comprehensive approach for adaptive capacity assessment. The
method, frameworks, approaches, and concepts described in the FAR
move toward the community capacity approach outlined in the next
section. For example, the FAR states: “The capacity to adapt is dynamic
and influenced by economic and natural resources, social networks,
entitlements, institutions and governance, human resources, and
technology.” (Adger et al., 2007, p. 719). The FAR summarizes their
assessment of adaptive capacity as follows: “In summary, empirical
research carried out since the TAR has shown that there are rarely
simple cause–effect relationships between climate change risks and the
capacity to adapt. Adaptive capacity can vary over time and is affected by
multiple processes of change. In general, the emerging literatures show
that the distribution of adaptive capacity within and across societies
represents a major challenge for development and a major constraint to
the effectiveness of any adaptation strategy.” Chapter 17 of the FAR
identifies limits and barriers to adaptation. They identify physical and
ecological limits, technological limits, financial barriers, informational
and cognitive barriers, and social and cultural barriers as key areas that
may limit adaptation.
The general approach to adaptive capacity assessment is useful
because it has broad applicability and it is practical, straightforward, and
intuitive. It leads to assessment and measurement approaches that are
feasible, tractable for policy analysis, and intuitive. The general approach
for adaptive capacity assessment can result in policy-relevant assessments of current capacity to adapt and potentially about the adaptive
capacity requirements of systems. A drawback of this approach is that it
is difficult to interpret whether current adaptive capacity level is socially
optimal — and if not why. Another drawback is that there is
inconsistency in application and a lack of comparability across studies.
Inconsistency and incomparability is in part due to a lack of consensus
about determinants of adaptive capacity (Adger et al., 2007). Finally,
there is no recognition of interrelations between determinants and
there is no systematic assessment to evaluate the optimal mix of
determinants or analysis to identify where investment in particular
determinants would yield the highest return.
2.2. Community capacity
The community capacity approach is based on the notion that access
to, and ownership of resources and assets enhance a community's
general capacity to respond to sudden impacts and contribute to longterm community sustainability. The community capacity approach is
also bottom-up in nature. Donoghue and Sturtevant (2007) assess
various social science constructs of community capacity used recently in
ecosystem assessments in the US. They find although there are areas of
similarity, they vary in some fundamental ways.
Beckley et al. (2002) describe an approach for assessment of
community capacity. They define community capacity as “the collective
ability of a group (or community) to combine various forms of capital
within institutional and relational contexts to produce desired results or
outcomes” (Beckley et al., 2002 p. 7) (see also Kusel, 2001). Forms of
assets that contribute to community capacity include
• Natural capital: natural resources and environmental services such
as clean air and water
• Human capital: skill, education, and health of individuals that
contribute to the skill base and economic performance of the
community
• Economic capital: local industrial base, physical infrastructure such
as roads and buildings, financial capital such as organizational
budgets and household savings
• Social capital: the relationships between and among community
members that contribute to collective action
Various authors allude to other forms of capital. For example, Flora
and Emery (2006) include cultural and political capital as determinants of community capacity.
Social scientists have also separately studied specific individual
determinants of community capacity frameworks in considerable depth.
For example, social capital is viewed as an important determinant of
community capacity. Social capital refers to the interrelations
and networks of individuals, organizations, and community leaders
(Matthews, 2003). Networks are defined in terms of size, density, and
diversity and they can take different forms (e.g. bonding, bridging, and
linking) (Franke, 2005). Social capital provides individuals and groups
with access to information and resources that they might not otherwise
have access to. Thus, social capital contributes to the ability of individuals
to deal with shocks and to adapt and adjust to change generally
(Matthews, 2003; Franke, 2005) and to climate change in particular
(Adger, 2003).
Social capital also exists at higher levels. For example a community's
collective social capital is measured in terms of numbers of organizations in a community, number of members in these organizations, and
interrelations between organizations (Franke, 2005). Also, community
leaders have social networks that may benefit the overall community. A
high level of social capital in a community contributes to adaptive
capacity because it supports collective action by the community. It also
contributes to actions or decisions that contribute to overall community
health and well-being.
Perception of climate risk affects the willingness of individuals to
adapt (McDaniels et al., 1996; O'Connor et al., 1999). Understanding
perceptions of climate change risk contributes to vulnerability assessment in two ways. First, individual perceptions provide new information that complements technical risk assessments because such
perceptions may be based on local observations that are too subtle to
be reflected in technical risk assessments. Second, there are often
features or characteristics of climate related risks and/or risk perceivers
themselves (i.e. individuals, communities, or policy actors) that may
result in differences between perceived risk and objective risk (Slovic,
1987; Slovic, 2000; McDaniels et al., 1995; Khaneman et al., 1982).
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Davidson et al. (2003), Stedman et al. (2004), and Williamson et al.
(2005) consider these factors in the context of forest-based communities and forestry actors in Canada. Underestimation of risk may result
insufficient adaptation and underinvestment in adaptive capacity
causing individuals and communities to be relatively more vulnerable.
Processes of adaptation and investment in adaptive capacity itself
are controlled by institutional and organizational factors that determine
how assets are generated and combined to produce various outcomes.
Adaptation and investment in adaptive capacity can be enhanced or
constrained by institutions (Adger and Kelly, 1999). Therefore, a
potentially important contributing factor for climate change vulnerability assessments is the identification of weak, inefficient, or out of date
institutions (Adger and Kelly, 1999). Institutions guide economic, social
and political choice, and the behaviour of agents. They define property
rights and responsibilities, and guide decisions by individuals, households, firms, government agencies, land-owners and organizations. In a
climate change context, institutions provide the incentives, rules,
mechanisms, tools, and means that will motivate and direct adaptation
and investment in adaptive capacity. Institutions that are effective and
efficient, and entitle individuals and groups to resources needed for
adaptation, will contribute to the adaptive capacity. Conversely,
institutions that do not optimally and efficiently provide individuals
and groups with access to resources necessary for adaptation, and/or
that do not provide sufficient autonomy to adapt in ways that are best
suited to their particular requirements will constrain or reduce adaptive
capacity (possibly at levels that are socially sub-optimal).
The community capacity approach provides more structure and goes
into more detail about the formation, use, and depreciation of the
various determinants that contribute to adaptive capacity. It also
directly refers to processes affecting the formation and utilization of
adaptive capacity resources. The community capacity approach provides an enhanced understanding of adaptive capacity from the point of
view of social processes and systems. As was the case with the general
approach, there are some limiting aspects of the community capacity
approach. First, there is a lack of a commonly agreed-to overarching
definition of capacity in terms of which determinants to consider. The
result is multiple competing viewpoints and approaches about what to
include. A second general limitation is that it is not behavioural in that it
does not consider how investment in adaptive capacity contributes to
agent objective functions. Similar to the general approach, the
community capacity approach is a bottom-up approach, and there is
no criterion for determining adequacy of current adaptive capacity in a
particular human system.
3. A behavioural approach
The current constructs of adaptive capacity described in the
previous section have a number of weaknesses including the potential
for inconsistency across studies and absence of an overarching topdown framework that allows for consideration of the question: how
much adaptive capacity is enough and when is adaptive capacity
undersupplied? Addressing this question requires an approach that
looks at human motivations for possessing, purchasing, and developing adaptive capacity and costs. It requires a behavioural approach.
A behavioural approach starts with recognition that aggregate
adaptive capacity derives from the purchase and possession of various
adaptive capacity resources and assets. Adaptive capacity resources and
assets are accumulated because they serve some function relative to an
owner's goals and objectives. These assets are obtained by individuals,
firms, and societies through a combination of purchasing, construction,
time investment, inheritance, and redistribution. The assets may also
depreciate over time with use or simply as a result of decay. The number
and magnitude of adaptive capacity assets obtained and the particular
mix of assets in the adaptive capacity basket is determined by individual
and collective choices that are regulated, constrained, and influenced by
rules, norms, standards, policies, regulations, institutions, markets,
3
customs, prices, costs, and incomes. If agents are rational and if
allocation systems and resulting investments are efficient, then the
existing adaptive capacity of an individual or a firm or a group or a
society will be optimal.
The aggregate adaptive capacity of an individual or firm or organized
system can also be characterized by inherent properties and characteristics. These properties include liquidity of held assets, mobility,
diversity, flexibility, efficiency, rigidity, and substitutability. These
properties and characteristics influence (1) the responsiveness of a
system to adapt in a timely way once a signal of adaptation requirement
is revealed, and (2) the types of adaptations that a particular adaptive
capacity configuration can support (e.g. in-situ adaptation vs. migration;
physical adaptation vs. behavioural adaptation).
Viewed in an economics general equilibrium context aggregate
adaptive capacity (the output produced by combining individual
adaptive capacity assets) can be regarded as a service that is produced
and consumed along with other goods and services. Individuals and
firms demand adaptive capacity because it contributes to utility, wellbeing, and the management objectives of firms. Societies demand and
develop adaptive capacity because it has public good characteristics
(and therefore tends to be undersupplied by private markets), and
contributes to over all social well-being. Adaptive capacity producers
(who are in some cases also the consumer) develop, create, and/or
supply adaptive capacity. Agents jointly determine welfare maximizing
levels of all goods and services (including adaptive capacity). Welfare is
maximized where marginal benefit equals marginal cost for all goods
and services and markets clear (i.e. supply equals demand). Therefore, if
markets and institutions are efficient and producers and consumers are
rational and well-informed, the levels of adaptive capacity that are
expressed in households, firms, communities, economies, and regions
will be socially optimal and in equilibrium.
Given the above, different socio-economic systems will vary in
equilibrium levels of adaptive capacity and in the amounts and
configuration of assets that contribute to adaptive capacity. Differences
in what is socially optimal might occur because of differences in
(1) requirements, (2) preferences, (3) costs of obtaining, developing,
purchasing, creating or maintaining adaptive capacity assets, (4) income,
and (5) relative prices of adaptive capacity assets and all other goods and
services. Various other factors affect adaptive capacity investment
choices including scale of the system, remoteness, natural endowments,
and isolation. Thus, there may be rational and justifiable reasons for
differences in adaptive capacity between individuals, between firms, and
between organized human systems. This is neither good nor bad.
Moreover, it does not necessarily imply higher or lower vulnerability
because if allocation mechanisms are efficient and agents are rational,
climate change considerations in combination with all other factors will
have been factored into decisions about adaptive capacity holdings. If,
however, agents are irrational or if there are systematic barriers and
failures in allocation mechanisms (be they market, social, or political in
nature) that bias investment choices or restrict use of adaptive capacity,
then there may be either underinvestment in particular adaptive
capacity assets or underutilization of these assets resulting in adaptive
capacity deficits and heightened vulnerability.
A number of important conclusions that run contrary to current
mainstream adaptive capacity constructs arise from the previous
discussion.
1. Static adaptive capacity (at a particular point in time) is a function of
assets (human capital, social capital, intellectual capital, infrastructure, knowledge, science capacity, information technology). Adaptive
capacity investment is also affected by, or determined by exogenous
factors such as requirements (current and expected future demand),
preferences (including risk preferences), income, prices, cost, natural
capital endowments, scale, remoteness, access, and isolation.
2. Adaptive capacity can also be characterized in terms of certain
inherent properties (e.g. liquidity of held assets, mobility, diversity,
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3.
4.
5.
6.
flexibility, responsiveness, efficiency, and substitutability) and the
types of adaptation that can be supported (in-situ adaptation,
relocation, physical change, behavioural change).
As noted, income, financial resources, and natural capital are
exogenous determinants of adaptive capacity. The goal of the
decision maker is to purchase a basket of goods and services
(which includes adaptive capacity assets) that maximizes agent
well-being or utility given a certain income and other endowments.
Income and endowments, therefore, do not define adaptive capacity.
They do, however, influence the amounts of adaptive capacity assets
and resources that can be obtained. This suggests that there is a
distinction between what defines adaptive capacity and what
determines adaptive capacity. Adaptive capacity is comprised of
investable assets such as human capital, social capital, cultural
capital, infrastructure, knowledge, scientific evidence, and intellectual capital. The magnitude of individual adaptive capacity assets
held is determined or influenced by preferences, income, endowments, costs, relative prices, institutions, and other exogenous factors
(scale, remoteness, isolation, etc.).
Assuming rational agents and efficient allocation systems (economic,
social, political, and information) there is some optimal (but likely
unknown) level of adaptive capacity for individuals, firms, and
human systems and an optimal mix of adaptive capacity assets that
contribute to aggregate adaptive capacity. There is a hypothetical
right amount of particular adaptive capacity assets for individuals,
firms, and organized human systems and this amount will vary crosssectionally and over time. Differences in adaptive capacity between
individuals or between organized human systems, therefore, are
natural do not necessarily correlate to differences in vulnerability.
The challenge for vulnerability analysis, therefore, is to determine
where differences are normal and where differences are the result of
biased decisions and choices.
Adaptive capacity deficits are the result of irrational agent
behaviour or system failures. The main consequence is the
potential for underinvestment and underutilization of adaptive
capacity assets. It is these factors that contribute to heightened
vulnerability.
A society may decide to redistribute resources and assets in order
to enhance the aggregate adaptive capacity of a particular group.
But this comes at the price of reduced aggregate adaptive capacity
of some other group within society.
4. Factors contributing to adaptive capacity deficits
Systematic analysis of factors contributing to adaptive capacity
deficits extends beyond economics. An integrated, multi-disciplinary
approach is required. A complete framework for assessing adaptive
capacity deficits necessarily touches on economics, sociology, psychology, political science, geography, and law.
There are four main categories of factors that may result in suboptimal investment in adaptive capacity: (1) market failure, (2) governance/institutional failure, (3) social system failure, and (4) information/knowledge gaps/irrational agent behaviour. Examples of
causation factors within each of these categories are indicated below:
Market/economic system failure
• Imperfectly competitive markets
• Sub-optimal supply of public goods (e.g. public infrastructure, health
and social services, emergency services [fire, police, and ambulance],
education, environmental protection and conservation)
• Moral hazard and adverse selection (e.g. failing to take measures to
reduce risks because of the knowledge or perception that risks are
insured or that governments will reduce the risk or provide
compensation)
• Market rigidities (potentially indicated by below average low
capacity utilization or high unemployment)
• Tariffs and trade barriers
• Subsidies and inefficient tax regimes
Governance, institutional, and policy failure
• Unjustified and economically inefficient policy and program
interventions
• Public supply of private goods
• Undefined, unenforced, or attenuated property rights
• Inefficient policies, programs, and regulations
• Over-regulation or regulatory complexity
• Adverse incentives
• Policies, programs, regulations, and institutions that are nonresponsive, inflexible, and not forward looking or that fail to account
for future climate change (e.g. policies that do not anticipate future
climate change where it is justified and necessary to do so)
• Absence of strong, dedicated, committed, competent, and effective
leaders
• Corruption and nepotism
• Lack of transparency and accountability
• Lack of autonomy and authority to invoke adaptation at relevant
scales
• Institutional factors that restrict movement and mobility
Social system failure
• Significant gender, race, cultural, class, religious, and other divisions
within society
• Presence of social conflict, disharmonious relations,
• Closed social system, restricted freedom of movement and expression
• Occurrence of human rights violations and discrimination
• Lack of effective public consultations in decision making
• Undemocratic policies and practices
• Unequal access to food, water, shelter, health services, social services,
and education within a society
• Lawlessness, absence of justice, lack of enforcement, high rates of
crime
Information system failures and irrational agent behaviour
• Significant science and knowledge gaps
• Low science capacity of affected parties and inability to process
complex climate impacts information
• Asymmetric information and adverse selection (differences in
information between people creates inefficiencies in market
transactions and may inhibit collaboration and cooperation)
• Lack of awareness about climate change impacts and risks
• Lack of access to information, databases, tools, and frameworks to
support vulnerability analysis and adaptation planning
• Biased risk perceptions
• Cognitive bias or distortion resulting in errors in judgement and
choice
The presence of the above factors (singularly or in combination) has
the potential to produce socially sub-optimal investments in adaptive
capacity resources and assets or restrict the effectiveness of adaptive
capacity resources with the result that the system that is subject to the
resulting biases and distortions will be more vulnerable than another
system that is not subject to the same types of irrational choices and
system failures. Some of the consequences of adaptive capacity deficits
include:
• Impaired capacity of economic agents to adapt to changes in current
and expected future prices and costs
• Low capacity utilization of man-made capital, underutilization of
productive capacity of natural resources, and chronic unemployment
• Insufficient budget allocation for adaptation and adaptive capacity
resources
• Biased signals of adaptation and adaptive capacity requirement
• Reduced competitive pressure and reduced competitiveness of agents
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• Constrained adaptation and restrictions on use of existing capacity to
adapt for individuals, firms, social systems, and governance systems
• Irrational and biased choices about adaptive capacity and adaptation
• Rigidity, inaction, lack of planning
• Social dysfunction, disharmony, conflict, non-cooperation, low levels
of interdependence, lack of integration,
• Underinvestment in human capital, social capital, intellectual
capital, infrastructure, science, and knowledge
• Inequitable distribution of adaptive capacity resources and assets
• Loss of trust in public institutions
• Non-compliance with rules, social norms, regulations, and laws
• Preventable uncertainty and development of information scarcities
about future impacts
• Lack of awareness, biased perceptions of risks, inability to utilize
existing scientific information
• Cognitive errors in evaluating impacts and adaptive responses
5. Assessing adaptive capacity deficits
It is not possible to identify adaptive capacity deficits by comparing
measured adaptive capacity against an adaptive capacity standard.
Adaptive capacity is intangible and not directly measurable. It can be
assumed, however, that if individuals are rational and if a system is
functioning efficiently then adaptive capacity will be optimal. If,
however, individuals or firms are exhibiting irrational behaviour in
terms of responding to climate change, or if there is some system
failure that is preventing optimal investment in adaptive capacity, or
if system failures are in some ways restricting the effectiveness of
existing adaptive capacity, then there is likely an adaptive capacity
deficit that in some ways makes the system vulnerable. This section
provides a series of steps for applying the concept of adaptive capacity
deficit in the context of climate change vulnerability analysis.
5.1. Assessment issues
There are a number of issues that make the assessment of adaptive
capacity deficits challenging. First, as noted, adaptive capacity is
intangible partly because it is composed of a number of intangibles
(e.g. human capital, social capital, intellectual capital, creativity,
knowledge, organizational capital). Second, the causes of adaptive
capacity deficits are wide ranging. Their assessment touches on a range
of disciplines including economics, sociology, psychology, political
science, law, and human geography. An integrated, comprehensive,
and multi-disciplinary approach is needed in order to assess adaptive
capacity deficits. Third, evaluation of institutions and governance
systems is vital but difficult. Decisions are based on complex interactions
and trade-offs between multiple competing values. It is difficult to
ascertain with certainty, therefore, if there is any kind of systematic
failure in governance and institutions.
5.2. Assessing aggregate adaptive capacity
The identification of adaptive capacity deficits starts by evaluating
current adaptive capacity. However, as noted, aggregate adaptive
capacity is an “intangible asset” and it is not directly measurable. In
the economics literature, intangible assets include attributes such as
skills, intellectual property, managerial quality, and other characteristics
and qualities that confer benefits to consumers or producers but that are
not directly measurable (Brynjolfsson et al., 2002). Adaptive capacity is
similar. It is necessary, therefore, to make inferences about adaptive
capacity. There are two ways to make inferences about aggregate
adaptive capacity. One is to evaluate individual determinants (social
capital, human capital, etc.). As discussed earlier, this bottom-up
determinant based approach is used in the Intergovernmental Panel
on Climate Change's Third and Fourth Assessment reports (see Smit and
Pilifosova, 2001 and Adger et al., 2007).
5
An alternative approach is to infer levels of aggregate adaptive
capacity using outcome proxies. All individuals and organized systems
are subject to social, economic, and environmental change. If it can be
assumed that adaptive capacity is correlated with social and economic
outcomes then outcome indicators provide useful proxy indicators of
the adaptive capacities of individual agents and of human systems.
Systems with low adaptive capacity may be more prone to frequent
large swings in the economy or in the local population. A system with
low adaptive capacity may also display characteristics such as negative
or below average economic growth, high unemployment (indicating
labor markets are unable to clear), low per capita income, high poverty
rates, low rate of capital investment, presence of significant conflicts,
high crime rates, slow rates of recovery following shocks, and high
infant mortality rates. However, the interpretation of these various
indicators is not necessarily straightforward. For example a proxy
indicator of current adaptive capacity could include percentage change
in population between two periods. A declining population does not
necessarily indicate low adaptive capacity. If population change results
in a net improvement for the individuals and regions affected then
adaptive capacity of the individuals and regions affected would seem to
be strong. However, if the population is migrating and there is no net
improvement in welfare, then adaptive capacity of individuals and
regions may be low.
5.3. Analyzing adaptive capacity deficit potential
Step two involves the analysis of populations and systems to identify
if there are adaptive capacity deficits. As noted, the identification of
adaptive capacity deficits cannot be achieved by comparing measured
adaptive capacity to an adaptive capacity standard. The identification of
potential deficit cases comes down to the identification of causation
factors. As noted in the previous section the main categories of factors
contributing to adaptive capacity deficits are: (1) market failure,
(2) governance failure, (3) social system failure, and (4) information
system failure and irrational agent behaviour. A number of specific
potential causations are listed under each of the above categories in the
previous section and will not be repeated here. Given the diverse suite of
factors potentially contributing to adaptive capacity deficits, an
integrated and multi-disciplinary approach is required.
5.4. Identification of consequences
If adaptive capacity deficit causation factors are identified, the next
step is to conduct a systematic assessment of the consequences. The
consequence of an adaptive capacity deficit may be underinvestment
in adaptive capacity assets, underutilization of adaptive capacity
assets, or a socially inequitable distribution of determinants. Specific
adaptive capacity assets (e.g. natural capital, human capital, social
capital, intellectual capital, infrastructure, cultural capital) could be
selectively considered for more detailed analysis and remedies
provided. Recommendations about remedies would necessarily
include identification of where social returns would be the highest.
5.5. The potential for emergent adaptive capacity deficits
The final step is the identification of the potential for emergent
adaptive capacity deficits. In some cases, the prime concern may not be
in terms of current adaptive capacity but in terms of the potential for an
adaptive capacity deficit to emerge in the foreseeable future. Individuals
and organized systems may not be subject to current adaptive capacity
deficits but may face the prospect of emergent deficits under future
climate change. There are two main reasons why adaptive capacity
deficits may emerge. First, if future outcomes differ from what people
are expecting them to be, then systematic under and/or over investment
might occur and adaptive capacity deficits may emerge. Second, climate
change itself can have feedbacks on adaptive capacity. For example,
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T. Williamson et al. / Forest Policy and Economics xxx (2010) xxx–xxx
natural capital is considered to be a determining factor of adaptive
capacity. However, climate change can increase or decrease natural
capital. Therefore, climate change itself can contribute to adaptive
capacity deficits and surpluses.
6. Adaptive capacity of economic systems
The second area where economics can better inform current adaptive
capacity constructs is by assessing factors or features that influence or
affect the adaptive capacity of economic systems (Williamson et al.,
2007). Existing constructs of adaptive capacity say very little about the
role that higher-level economic system properties such as economic
diversity might play in affecting the adaptive capacity of the socioeconomic system. However, diversity (as well as other properties such as
flexibility) is an important characteristic of adaptive systems (e.g. see
Gunderson and Holling, 2002). Individuals who reside in communities
where the economy is dominated by a single industry or a single mill, for
example, have fewer options and face higher adaptation costs (e.g.
requirements to relocate) than individuals who reside and work in
communities or regions with more diverse economies, particularly in
cases where the primary resources that support the industry (or mill) are
climate sensitive (such as the forest industry). Specialized labor skills
associated with a particular industry may further reinforce this lack of
employment mobility (Davidson et al., 2003). In some cases a long
established dominant industry within a single industry resource-based
town may have an aging workforce and older workers may have
difficulty relocating to new industries in the new knowledge economy.
The current constructs of adaptive capacity also say very little about
scale as a determining factor of adaptive capacity. However, scale can
have a large influence on the capacities of socio-economic systems,
particularly given recent trends such as agglomeration of industrial
capacity, globalization, and urbanization. Smaller communities may
have a lower ability to attract new investment and new industries in
cases where the current industry is in being downsized.
In the case of the supply and demand of private goods and services,
open and competitive free market economies have a higher capacity to
adapt to change than closed, heavily regulated, and centrally planned
economies. Competition provides a strong incentive and motivation for
adaptation and ensures that agents are innovative and adaptive.
Competitive free market economic systems are adaptive in the sense
of being responsive and flexible. Moreover, decisions about resource use
and allocation occur autonomously in response to market signals as
opposed to relying on bureaucratic central planning, government
ownership, regulation, and or tax policy. There may, therefore, be
opportunities to increase adaptive capacity by reducing public intervention in private good allocation (e.g. reducing subsidies and tax
incentives/penalties, reducing public ownership, reducing regulation)
(Luckert and Williamson, 2005). At the same time, private markets are
inefficient relative to the optimal provision of public goods and common
property goods and so for cases where adaptive capacity requirements
increase relative to potential threats to public goods, an increase in
public interventions may be warranted. Here again, economics can play
a role in determining where increased private markets can have a
positive effect on adaptive capacity and where there is a need for more
intervention and regulation. Moreover, interventions may be necessary
where there is a need for redistribution of adaptive capacity. The need
for redistributing income to address inequities in the distribution of
adaptive capacity is a social policy question. Nonetheless, economics can
inform decision making by identifying opportunity costs and the most
efficient way to redistribute adaptive capacity to more equitable levels
across systems.
From an economics perspective adaptive capacity can be viewed as a
function of factor inputs (i.e. determinants) where the functional
relationship between adaptive capacity and inputs is defined by some
type of underlying (but unknown) production function. Some factors
may be complementary and some may be substitutes. Some factors
contributing to the production of adaptive capacity may be easily
substituted (i.e. there is a relatively high elasticity of substitution) and
for others it may be difficult to substitute inputs (i.e. there is a relatively
low elasticity of substitution).
In the short term, business decisions of firms are constrained by the
fact that some inputs (such as a firm's capital stock) are fixed. The fixed
nature of some inputs means that options for adaptation in the short run
are limited. In the long term, all inputs (including capital) are variable
and a different set of adaptation strategies might be possible. Thus, in
assessing the adaptive capacity of firms and economies it may be useful
to differentiate between the short run and long run. In the long run,
firms may respond to reduced prices and/or changes in resource costs
and availability by shutting down and/or relocating, increasing plant
size (assuming economies of scale exist), investing in new technologies,
changing input proportions (i.e. substitution).
The differentiation between short-run adaptive capacity (where
some determinants are relatively fixed) and long-run adaptive capacity
(where all determinants are variable) may also be an extension worthy
of further consideration in assessing the adaptive capacity of local
economies. For example, in the short run some factors and properties
that affect adaptive capacity of economies and social systems are
relatively fixed (e.g. fixed infrastructure assets, structure and degree of
diversity of the local economy, size, remoteness, natural capital). Other
factors (such as human capital, social capital, political capital, cultural
capital, etc.) might be considered as variable in the sense that
individuals (and communities) have an opportunity to change the
levels of these determinants in the short run.
7. Summary and conclusions
There are a variety of ways that economics can contribute to how
adaptive capacity is defined, interpreted, and utilized. First, economic
theory and concepts have the potential to provide structure and an
integrating framework for adaptive capacity analysis. For example the
general equilibrium/behavioural construct is a top-down approach that
provides for a more consistent, objective, and policy-relevant interpretation of adaptive capacity. Subjective assessments of adaptive capacity
based only on the presence and abundance of particular adaptive
capacity assets are necessary but not sufficient. The assessment of
current and/or potential future adaptive capacity deficits complements
the determinant based approaches and reduces some of ambiguity
inherent in these approaches. A second improvement from economics is
to introduce properties such as scale, economic diversity, substitutability, remoteness, and isolation into methods as well as approaches for
assessment of adaptive capacity. A third improvement is to explicitly
assess the structure of the local economy in terms of whether the
current mix of private markets and public interventions is appropriate
given climate change. Market-based systems are the most efficient
mechanism for reallocation of private goods and services under climate
change. There may, however, also be social costs and externalities
associated with markets. Consequently, the relative efficiency and
effectiveness of private sector and public institutions in adapting to
impacts on non-private goods and services is an important factor.
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