Climate change is likely to have substantial effects on irrigated agriculture. Extreme climate events such as droughts are likely to become more common. These patterns are evident in median projections of climate change for the Murray–Darling Basin in Australia. Understanding climate change effects on returns from irrigation involves explicit representation of spatial changes in natural stocks (i.e. water supply) and their temporal variability (i.e. frequency of drought states of nature) and the active management responses to capital stocks represented by mitigation and alternative adaptation strategies by state of nature . A change in the frequency of drought will induce a change in the allocation of land and water between productive activities. In this paper, a simulation model of state-contingent production is used to analyze the effects of climate change adaptation and mitigation. In the absence of mitigation, climate change will have severe adverse effects on irrigated agriculture in the Basin. However, a combination of climate mitigation and adaptation through changes in land and water use will allow the maintenance of agricultural water use and environmental flows.


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