Whereas temperatures in the past have shown a downward trend for most of the Chilean population, most climate models suggest that they should increase in the future, and that they will increase faster in the northern part of Chile than in the South. The models also indicate that the reductions in precipitation observed in the central part of Chile over the last 50 years will continue during the next 50 years, amounting to a further 10 percent drop over the next 50 years.

The paper simulated the likely effects of these projected climate changes, and found that expected future climate change would reduce incomes across the whole country, with an average reduction of about 7 percent.

Some qualifications to these findings are in order. First, the simulations have been carried out by varying only temperature and precipitation, but holding all other factors constant. Holding everything else constant is of course not realistic. Education levels are likely to increase and the structure of the economy is likely to keep changing towards activities that are less sensitive to the climate. If the high growth rates experienced over the last 25 years (5.2% per year) continue, incomes in 2058 would be 1,261 percent higher than now if there were no climate change, and 1,177 percent higher if climate changes as projected by the IPCC models. In either case, people will be considerably richer than they are now, and their ways of living may be so different, that the climate-income relationships of today are no longer relevant.

<mark>Another factor which is assumes to be constant, but which is almost certainly going to increase, is the atmospheric CO</mark> 2 <mark>concentration. It seems likely that atmospheric CO</mark> 2 <mark>concentration will increase from the current level of 387 ppm to somewhere between 500 and 600 ppm 50 years from now, depending on how effective Kyoto and Post-Kyoto policies are at reducing emissions. The resulting CO</mark> 2 <mark>fertilization effect may increase crop productivity significantly, as indicated by almost all studies of CO</mark> 2 <mark>-fertilization (e.g. Allen et al 1987; Baker et al 1989; Poorter 1993; Rozema et al 1993; Wittwer 1995; Torbert et al 2004). Ignoring this beneficial effect may imply that the estimates presented in the present paper are too pessimistic.</mark> Second, people do not necessarily have to stick around as temperatures increase, as the simulations in the present paper have assumed. Internal migration could potentially reduce the costs of climate change, if people can move towards regions with more suitable climates. Chile has climates for every taste, and the fact that the population currently is concentrated in the central region with moderate climates, whereas the extremes are sparsely populated, suggests that people have been taking advantage of this possibility in the past. Currently, however, adaptation through migration is somewhat hindered by the public housing policy. Soto and Torche (2004) show that the very effective public housing subsidies in Chile have the unfortunate side effect of tying people to their geographical location and inhibiting migration.

Third, this paper compares equilibrium situations before and after climate change, but ignores transition costs. Since climate changes in Chile are quite slow, especially compared to the natural variation from month to month and from place to place, such transition costs 25