elevation areas appear the most able to cope, and in some cases gain from climate change. It should also be noted that the parts of the country that stand to benefit, or stand to lose the least from climate change, i.e. the South Western and Central regions of the country, are also in the path of the South West monsoons which bring rains between May and September.

# **CONCLUSION**

This study makes two main contributions to the literature. First, from a methodological standpoint, this study applies a Ricardian framework with which to employ detailed farmlevel data on net revenues across a diverse range of agro-ecological zones, available in most recent household surveys, together with climate data. In estimating the impacts of climate change, we argue that the use of farm level surveys is essential to tap into the within-district variation and also to capture the many socio-economic controls that can be obtained from household surveys and that serve to proxy for the adaptive abilities of farmers in the face of climate change. Our second contribution is that we empirically estimate the likely impacts of climate change on the smallholder sector in Sri Lanka using a single cross section of data. In carrying out the estimation, we are careful to handle some of the estimation problems, namely multicollinearity, which affects the crosssectional climate impacts in the literature.

We find that climate variables can explain about 14% of the variation in net revenues across farms. Adding farmer, household and community characteristics increases the explanatory power of the model to 31%. About half of the explained variation is therefore due to climate and half is due to other micro level characteristics. This underscores the importance of controlling for a more diverse array of determinants of farm net revenues in conducting Ricardian valuations. For instance, we find that the manner in which produce is marketed, whether the farmer has legal property rights to cultivate the land, the size of the individual plots, and the number of crops cultivated each year are very significant determinants of net revenues per hectare. These variables have not previously been considered in the Ricardian literature.

The effect of predicted climate change scenarios depends heavily on the scenario. With a mild warming and a large increase in precipitation, we predict benefits (+22%). With medium warming and only a small increase in precipitation, we predict losses of 23%. We also predict that the climate change impacts will have considerable regional variation, which we assert is crucial from both a climate and poverty perspective (forthcoming paper). The wet, high-elevation areas may well benefit from warming whereas the hot, dry North Western and South Eastern lowlands are expected to be adversely affected. Irrigation has been used to moderate climate limitations in the lowland dry zones. However, future analyses will have to determine whether warming will threaten this adaptation by reducing runoff.

The results of our study also highlight the importance of precipitation relative to temperature for agriculture in tropical countries. Changes in precipitation dominate temperature especially during key months for local agricultural practices. Policies to address climate change concerns should therefore place a greater emphasis on dealing with long-term changes in precipitation.

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