Dams:

Do Costs Exceed Benefits?

ECONOMIST, n. a scoundrel whose faulty vision sees things as they really are, not as they ought to be.—after Ambrose Bierce

By Daniel K. Benjamin

Dams are often touted as engines of economic development, able to markedly reduce poverty. Irrigation made possible by dams, for example, is said to increase agricultural productivity and thus per capita income. But it is increasingly recognized that dams can have significant adverse environmental impacts. It thus seems prudent to examine whether the beneficial effects of dams are all that they are said to be. Recent research by Esther Duflo and Rahini Pande (2007) finds that much of the economic benefits accruing to people downstream of dams is in fact offset by economic damages inflicted on persons upstream of those dams. Hence the supposed benefits of dams are much smaller than commonly supposed—even negative in some cases—making it more important than ever to scrutinize dams’ environmental effects.

Worldwide there are more than 45,000 large dams (upwards of 15 meters tall or having a reservoir capacity exceeding 3 million cubic meters), and nearly half of the world’s rivers are obstructed by a large dam. The construction of new dams, financed locally or by international agencies such as the World Bank, remains a key tool of government-sponsored economic development. In China, for example, the massive Three Gorges Dam project has been the centerpiece of government efforts to reduce flood damage, increase irrigation, and increase hydroelectric generation in the central and eastern part of that nation.

Duflo and Pande examine the economic impact of dams in India, where nearly 10 percent of the world’s large dams are located. They find that populations downstream of large dams in India have indeed benefitted from those dams, due to reduced dependency on rainfall and to irrigation-enhanced agricultural productivity. But the authors also find that people upstream of dams suffer substantial economic losses. When dam reservoirs are filled, agricultural and forest lands are destroyed. Between 1980 and 2000, for example, more than 10 million acres of land in India were submerged behind newly constructed dams, and perhaps as many as 40 million people were forced to move (typically with little or no compensation). Further damage occurs upstream because increased salinity and excessive saturation of land in the dam’s catchment area cuts agricultural productivity there. Moreover, to fill the dam reservoir, water use upstream is often restricted, particularly in rain-scarce years. The result is a substantial increase in the vulnerability of upstream agriculture to shortfalls of precipitation. The authors conclude that upstream losses produced by dams often may fully offset any downstream gains.

Although critics of dams have previously noted the potential for adverse effects such as these, the innovation of Duflo and Pande lies in using topographic characteristics of the land to separate the effects of dam construction from other confounding factors. For example, river gradients steep enough to yield large reservoirs, but not so steep to cause erosion when the water is released, make for the best irrigation dams. Because the relevant topographic features vary considerably across districts in India (roughly the equivalent of counties in America), the authors can isolate the effects of dams from other relevant factors, such as fertilizer use and regional climate differences.

The authors find that each new dam increases the irrigated area and crop yields in the district downstream of the dam; the irrigation brought by the new dam also helps insulate downstream lands from shortfalls in precipitation, reducing year-toyear variations in output there. The consequences upstream are far different: Not only does the district in which the dam is built enjoy no increase in agricultural productivity; just as importantly, the district suffers from greater year-to-year output variations due to rainfall fluctuation.

Tragically, the net impact of dams in India on the people at the bottom of the income distribution appears to be negative. Although new dams reduce poverty slightly among people downstream, they increase poverty even more markedly upstream of the dams. On balance, the net effect is that building a new dam in India actually increases the proportion of the population below the poverty line. So much for development.

Obviously, the effects of dams can vary widely depending on local circumstances, and what is true for dams in India may do little to inform us about dams in the United States. Nevertheless, reports coming out of China (such as by Oster [2007]) strongly suggest that the adverse economic effects upstream of dams are not isolated to India. About 1.4 million people already have been forced to move from the catchment area of the massive Three Gorges Dam, and it now appears that an additional 4 million may have to move due to erosion caused by rising water levels. Combined with the new evidence presented by Duflo and Pande, it seems possible that upheaval and economic deprivation for individuals upstream of new dams may be the rule rather than the exception in developing nations. The Chinese experience with the Three Gorges Dam also suggests that the adverse environmental effects of large dams can be substantial, with huge accumulations of sewage and other pollution, and sharp reductions in fish harvests.

This combination of questionable economic benefits and large potential environmental costs make it clear why there is growing opposition to new dam projects. Indeed, as suggested by James Workman (2006), the next question may be: When will it start making sense to get rid of some dams that are already out there?

REFERENCE
Duflo, Esther, and Rohini Pande. 2007. Dams. Quarterly Journal of Economics, 122(2): 601–46.
Oster, Shai. 2007. Why Chinese Dam is Forcing Yet Another Mass Exodus. Wall Street Journal, November 6, A1.
Workman, James G. 2006. Deadbeat Dams. PERC Reports, December, 10-11.

Daniel K. Benjamin is a PERC senior fellow and Alumni Distinguished Professor at Clemson University. This column, “Tangents,” investigates policy implications of recent academic research. He can be reached at wahoo@clemson.edu.

 

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The effect of government policy changes on the private sector has been the unifying theme that ties together Daniel K. Benjamin's broad-scale research. He not only examines the outcomes of policy changes, but also the reasons behind the modifications.Taxes, unemployment, risk assessment, and drugs have been the focus of much of Benjamin's...
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