ABSTRACT
Economics has played an important role in the analysis of policy alternatives for several hundred years. Presently, project analysts are often interested in comparing alternative policies on the basis of the society’s welfare. Economic valuation is a process through which societal welfare is translated into economic terms. The societal-welfare element of various policies in economic terms can then be compared. It is not the sole determining factor in policy choice but is often important in the ultimate decision. This paper reviews the literature on the economics of climate change adaptation in developing countries, and identifies three key points for consideration in future studies. One key point is that all development policy should be formulated using forecasts from climate science as a baseline. When this is not done, there is risk that a false status quo without climate change is seen as an implicit baseline. Another important aspect is that the allocation of rights is crucial for the results; if households have a right to maintain their current livelihoods, the costs of climate change in developing countries are considerably greater than traditional willingness-to-pay studies would indicate. Thirdly to promote and discuss the incorporation of the valuation results into the support of policy making, including ecosystem‐ based climate change mitigation policies as well as ecosystem‐based welfare re‐distributional policies. Thus, costs and benefits of climate change adaptation cannot be analyzed using economic aspects only; climate science, behavioral science, and legal and moral aspects have crucial implications for the outcome of the analysis.