Abstract: Can farmers mitigate the impact of climate change? Using medium-term fluctuations of temperature and precipitation in Chile, this research tests the hypothesis of factor adjustment as a mechanism to attenuate the effects of extreme heat. I find that extreme heat leads to reallocation of land from fruit to forestry and primary activities. This readjustment leads to a reduction in labor and physical capital allocation in agriculture but also increases labor productivity and aggregate agricultural output. I conclude that this result is due to fruit sector is more labor-intensive than forestry and primary sectors, thus a reduction of this subsector drives away labor from the agriculture, but also leads to reallocation gains sufficiently high to compensate the direct losses due to extreme heat. These
findings are consistent with farmers using input adjustments as a medium-term mechanism to attenuate the effects of extreme heat and highlight that accounting for land reallocation is essential to quantify the mitigation of the damages associated with climate change.
Keywords: Climate change, adaptation, land reallocation, agriculture