Ning Zhang

This paper examines how public risk protection reshapes the trade-off between efficiency and resilience in firms’ production decisions. Leveraging the concentrated commissioning of dams in China during the 2000s as a quasi-experiment, we document that dam operations crowd out private defensive investments and redirect resources toward production activities, thereby enhancing downstream firms’ output and total factor productivity (TFP). However, these behavioral responses weaken firms’ capacity to withstand tail risks. Estimates from 100-year flood shocks show that losses for protected downstream firms are 185% higher than those of their upstream counterparts, corresponding to an additional annual economic loss of approximately 3.55 million RMB per firm. Our results highlight the hidden costs of relying on public infrastructure for risk mitigation.