Environmental Change, Water Scarcity, and Farmers' Differentiated Adaptations: Evidence from the Three Gorges Dam

Using the 2003 initial impoundment of the world's largest hydroelectric dam — China’s Three Gorge Dam — as a natural experiment, we assess how rural households with varying endowments adapted to the dam-induced water scarcity in the affected area. We first identify a persistent 12% reduction in rice yields in the downstream area where the water scarcity hits most. More importantly, the reduction of yield persists over 10 years after the initial shock suggesting the lack of median-long term adaptation of farmers. In response to the persistent shock on yield, local residents who were wealthier (measured by the size of farmland) compensated by migrating out for non-agricultural activities (31% more likely); while disadvantaged residents increased their acreage of rice cultivation by 22%. Our study confirms one main obstacle to farmers' adaptation to the major climate-environmental shock — the wealth constraint for out-migration.