Government and Nature: Evidence from the Distribution of Flood Damages in China
(with Runhong Ma and Yifan Wang) PDF: 2025 Oct 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: Can governments address climate threats by deliberately redistributing damages across space? We study the world’s largest flood-damage reallocation program, the Flood Detention Basin (FDB) policy in China, which designates over 30,000 km² of rural land as temporary flood storage zones to protect downstream cities during severe floods. Combining a difference-in-differences design with a spatial general equilibrium model, we quantify both local and aggregate effects. FDB policy causes persistent local economic losses in FDB-designated counties: an 11 percent decline in firm entry and a 10 percent reduction in nighttime light intensity. Using a spatial model with trade linkages among FDB-designated counties, FDB-protected cities, and other regions, we find that the policy increases total output by 0.24 percent (approximately 15 billion USD). When migration frictions are relaxed, aggregate gains double but inequality between rural FDB areas and protected cities widens. Our results reveal the trade-off between efficiency and equity in deliberate damage reallocation.
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