Climate Change and Human Capital Accumulation: Educational Decisions under Resource Scarcity and Uncertainty

Abstract

Abstract Climate change is forcing large scale structural changes in agrarian sectors in the developing world by adversely affecting water resources and threatening the viability of future agriculture. In the most drought affected regions, farmers must explore alternative skills for themselves and their children when faced with unsustainable livelihoods. In this paper, a stylized decision model of skill acquisition is developed in which farmers face the risk of an irreversible loss of groundwater due to climate change. Findings indicate that the risk of groundwater loss promotes higher efforts towards skill acquisition, in general, but skill seeker's own learning capabilities play an important role in determining the eventual outcome. Additionally, groundwater resources are depleted to fund skill acquisition through education, but when rate of skill depreciation is large or differences between skilled wages and agricultural income are small, groundwater depletion is delayed. A non-linear relationship between skill acquisition and groundwater sustainability emerges.