Do industrial policies that promote clean energy offer a "ray of hope", increasing a country's growth and welfare, whilst simultaneously reducing carbon emissions? We study the impact of Chinese solar subsidies whose implementation by city-regions went alongside massive expansion of the sector and a dramatic fall in global solar prices. We construct new city and firm panel data on solar policies, patenting and output. Using synthetic-difference-in-differences 2004-2020, we find production and innovation subsidies were more effective than demand-side (installation) subsidies in generating large and persistent increases in local innovation, net entry, production and exports. Demand policies did, however, reduce local pollution. To examine aggregate effects, we build and structurally estimate a quantitative spatial model with endogenous innovation and heterogeneous productivity across firms and cities, which accounts for business stealing and knowledge spillovers. Counterfactual analysis shows that: (i) local effects remain substantial at the macro level explaining 40%–50% of the aggregate changes in solar innovation, prices and revenues; (ii) social benefits to Chinese citizens exceed subsidy costs by 65% (and double this when environmental benefits are included); and (iii) although all subsidy types increase welfare, innovation subsidies are the most cost-effective.

Natural disasters affect not only the locations they physically hit, but also surrounding areas through trade linkages. As a result, the economic incidence of disasters differs from their physical footprint. We argue that ignoring this divergence leads us to understate the costs of natural disasters and misallocate the assistance that follows. To do so, we collect panel data on 5,100 rural households, surveyed in the aftermath of Pakistan's large-scale 2022 floods. We combine this with satellite flood measures and administrative damage data, and use a re-centered IV design to separately identify the impacts of direct and indirect flood exposure. We find that direct exposure to flooding causes physical damage to homes and crops, whilst flooding in the surrounding area drives impacts on other economic outcomes. A one-standard-deviation increase in indirect exposure to flooding reduces the probability of being in paid employment by 9 percentage points, increases local food prices by 8% and lowers real consumption by 12%. This is not reflected in disaster relief: all else equal, direct exposure makes a household more likely to receive aid, while having flooded neighbours makes it less likely. To assess the benefits of optimal targeting, we build a spatial general-equilibrium model, and find substantial welfare gains compared to targeting on physical exposure, particularly when floods are large.

NBER Summer Institute 2026 (Environment and Energy Economics) · LSE Environment Camp 2026 · LSE Environment Week 2026 (scheduled)

IGC · STEG · Harvard University

Droughts are becoming more frequent, and cities facing them must decide how to divide a temporary cut in water between residential and commercial use. We study this choice in Cape Town's Day Zero crisis, where the city raised prices sharply to attenuate demand. Using the universe of formal employment, we find losses in water-intensive industries that lasted long after prices returned to normal, with the reduction in water use by firms coming from exit rather than substitution. Neither employment in water-intensive sectors nor the formal employment rates of workers displaced from them had returned to trend six years later. These impacts spilled over onto sectors that bought from, sold to, or shared workers with water-intensive industries. To measure the welfare cost of the implemented policy against alternatives, we build a dynamic spatial model of the city, with firm entry and exit and costly job switching. We find that a policy that shifted the cut toward households, protecting a free basic allowance while raising prices on use above it, would have avoided nearly two thirds of the welfare losses from the drought.

NBER Summer Institute 2026 (Urban Economics)* · LSE Environment Camp 2026* · LSE Environment Week 2026 (scheduled)** presented by coauthor

IGC · Water, Air and Energy (WAE) Lab

Heatwaves, intensified by climate change, hit the poorest the hardest. Many are exposed to dangerous temperatures through outdoor or factory-based work, and have limited access to adaptive resources. How can social protection evolve to address the growing losses caused by extreme heat? We conduct a randomized controlled trial among low-income workers in Delhi, India, comparing the effects of temperature-indexed heat alerts, anticipatory daily wage payments delivered before heat events, and same-day daily wage payments delivered during heatwaves. We measure impacts on labour supply, adaptive behaviours, health, and financial wellbeing. The design separately identifies the value of information, the value of cash, and the value of acting ahead of heatwaves.

JPAL K-CAI

Psychologists have long argued that human needs are met in order of priority: until basic needs such as shelter are secured, attention and effort remain focused on them, delaying higher-order pursuits. This idea has implications for a range of economic outcomes — shaping, for instance, how much background risk a household bears and, thus, how willing it is to make high-risk, high-reward investments in the future. Despite its influence, the idea that needs follow a hierarchy has rarely been tested using credible causal evidence on economic behaviour. We provide such a test using the reconstruction of flood-destroyed homes in Sindh, Pakistan. Exploiting staggered disbursements of home-reconstruction grants, we compare otherwise-similar households that received funding just before and just after a program expansion. Combining administrative records with a survey of 6,000 households, we estimate the effects of home security on risk-taking, migration, health, schooling, and productive investment.

Hub for Equal Representation (LSE)