Government and Nature: Evidence from the Distribution of Flood Damages in China
(with Yifan Wang) PDF: SSRN 2024 Version (first version: 2023 Nov); Media Coverage: VoxDev
Innovative Policy Award Honorable Mention by Asian Development Bank and International Economic Association
Chinese Economist Society (CES) Gregory Chow Rising Star Award
Chinese Association of Environmental and Resource Economics (CAERE) Best Paper Award
Innovative Policy Award Honorable Mention by Asian Development Bank and International Economic Association
Chinese Economist Society (CES) Gregory Chow Rising Star Award
Chinese Association of Environmental and Resource Economics (CAERE) Best Paper Award
photo credit to: Fang Wu
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Abstract: With increasing flood risks, it is increasingly important to understand the impact of government interventions that reallocate flood damages. In 2000, the Chinese government designated 96 Flood Detention Basin (FDB) counties, allocating lower-elevation areas within these counties for temporary floodwater storage. During severe flood events, floodwater may be diverted to these FDB counties to protect downstream urban centers. We evaluate the aggregate and distributional impacts of the FDB policy. Difference-in-differences results show that if a county is selected to the FDB list, county-level firm entry and firm-level fixed asset investments would decrease by 15.9% and 19.7%, respectively. Overall, FDB designation results in a 10.7% reduction in county-level nighttime light intensity. We then develop a spatial general equilibrium model that captures trade linkages among FDB counties, protected cities, and other regions. By comparing the actual output to a counterfactual scenario without FDBs, we find that as FDBs absorb more floodwater, the policy’s output gains increase; however, this comes at the cost of growing inequality between FDB counties and others. In summary, FDBs may improve economic resilience against floods, but the economic cost is taken disproportionately by rural counties.
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Floods, Collaborative Matching, and the Geography of Innovation
Abstract: We study a novel mechanism of knowledge production: innovators adapt to climate change by forming cross-regional patent collaborations as a strategy to hedge against climate risk. We develop a search-and-matching theoretical framework that highlights a risk-sharing mechanism, in which innovators located in flood-prone regions seek patent collaboration partners in less-exposed regions to mitigate floods. To empirically test this framework, we focus on China, in which innovation activity is heavily concentrated in flood-prone areas. Using detailed patent records and satellite-based flood data from 2008 to 2018, we construct a dataset on cross-county patent collaborations. Our empirical analysis provides strong support for the model: the increase of flood exposure in a county is associated with an increase in cross-county patent collaborations. Moreover, county pairs with a history of simultaneous flooding are less likely to collaborate, while those with a strong record of patent quality are more likely to do so. Together, these findings uncover a previously underexplored channel through which knowledge production adjusts in response to climate risk.