Environmental Change, Water Scarcity and Farmers' Differentiated Adaptations: Evidence from the Three Gorges Dam∗ Ting CHENy Chong LIUz Sen MAx This version, February 2021 Abstract Using the 2003 initial impoundment of the world's largest hydroelectric dam as a natural experiment, we assess how rural households with varying endowments adapt differently to the dam-induced water scarcity in the downstream area. In response to a 13% reduction in rice yields, those who are wealthier and more experienced in market transaction, and less constrained by access to credit, made up their income loss from agriculture by allocating 97 to 106 more labor days (equivalent to 97 to 106 days per year) to non-agricultural activities, whereas the disadvantaged ones expanded the acreage of rice cultivation. These differential strategies adopted by these households resulted in widening income inequality. Keywords: Climatic and Environmental Change, the Three Gorges Dam, Adaptation, Agricultural Production, Non-agricultural Activities JEL Classification Nos.: O13 Q12 Q15 ∗We thank Tatyana Deryugina, Xiaomeng Cui, Jin Wang, Peng Zhang, Shuang Zhang, seminar partic- ipants at New York University (Shanghai), Fudan University, Jinan University, Peking University, Shang- haiTech University, and Liaoning University for helpful comments and suggestions. We are solely responsible for any remaining errors. yTing Chen, Department of Economics, Hong Kong Baptist University, Renfrew Road, Hong Kong. Email:
[email protected]. zChong Liu, School of Economics, Peking University, Beijing, P.R. China. Email: pkuliu-
[email protected]. xSen Ma, Institute for Economic and Social Research, Jinan University, Guangzhou, P.R. China. Email:
[email protected]. 1 Introduction The environmental sustainability of the mega-hydroelectric dams is increasingly drawing the public attention (Winemiller, et al., 2016; Zarfl et al., 2019; Barbarossa et al., 2020).