Adaptation to exogenous change in the economy and environment occurs on both intensive and extensive margins. Whether and how one accounts for human adaptation directly affects estimates of the economic consequences of environmental change, estimates that are both critical in informing policy decisions and notoriously difficult to value. Chapter 1 introduces and applies an analytical framework for placing an economic value on adaptation. We explore the issue first in a stylized model that facilitates making concrete generalizations about the kinds of adaptations that generate high or low economic value. We then test the soundness of our insights by incorporating learning and adaptive decision-making into a structural dynamic forestry model with changing climate conditions and uncertain prices.

Much attention has been devoted to the causes and effects of economic inequality. An acknowledged factor of inequality is innate ability, which is often used to justify a certain degree of inequality in a meritocratic society. Chapter 3 investigates an asymmetric merit pay hypothesis, which proposes the effects of inequality on worker effort must take into account differences in innate worker ability. In order to explore this hypothesis, we devise a novel experimental mechanism for generating endogenous asymmetric wage assignments between the employer and the employees within an organization. This mechanism 1) credibly assigns ability levels to employees and 2) credibly injects employer uncertainty about these ability levels. It allows us to isolate the ability and effort effects on organizational productivity. We are also able to differentiate insurance versus equity motives for wage compression.