Estimating Regulation-Induced Substitution: The Effect of the Clean Air Act on Water and Ground Pollution by Michael Greenstone. Published in volume 93, issue 2, pages 442-448 of American Economic Review, May 2003

This paper estimates the impacts of the Clean Air Act's division of counties into pollutant-specific nonattainment and attainment categories on measures of industrial activity obtained from 1.75 million plant observations from the Census of Manufactures. Emitters of the controlled pollutants in nonattainment counties were subject to greater regulatory oversight than emitters in attainment counties. The preferred statistical model for plant-level growth includes plant fixed effects, industry by period fixed effects, and county by period fixed effects. The estimates from this model suggest that in the first 15 years in which the Clean Air Act was in force (197287), nonattainment counties (relative to attainment ones) lost approximately 590,000 jobs, $37 billion in capital stock, and $75 billion (1987 dollars) of output in pollution-intensive industries. These findings are robust across many specifications, and the effects are apparent in many polluting industries.

Environmental quality in many developing countries is poor and generates substantial health and productivity costs. However, the few existing measures of marginal willingness to pay (MWTP) for environmental quality improvements indicate low valuations by affected households. This paper argues that this seeming paradox is the central puzzle at the intersection of environmental and development economics: Given poor environmental quality and high health burdens in developing countries, why is MWTP seemingly so low? We develop a conceptual framework for understanding this puzzle and propose four potential explanations for why environmental quality is so poor: (1) due to low income levels, individuals value increases in income more than marginal improvements in environmental quality; (2) the marginal costs of environmental quality improvements are high; (3) political economy factors undermine efficient policymaking; and (4) market failures such as weak property rights and missing capital markets distort MWTP for environmental quality. We review the literature on each explanation and discuss how the framework applies to climate change, which is perhaps the most important issue at the intersection of environment and development economics. The paper concludes with a list of promising and unanswered research questions for the emerging sub-field of “envirodevonomics.”

Estimating the Value of a Statistical Life: The Importance of Omitted Variables and Publication Bias by Orley Ashenfelter and Michael Greenstone. Published in volume 94, issue 2, pages 454-460 of American Economic Review, May 2004

In 1987 the federal government permitted states to raise the speed limit on their rural interstate roads, but not on their urban interstate roads, from 55 mph to 65 mph. Since the states that adopted the higher speed limit must have valued the travel hours they saved more than the fatalities incurred, this institutional change provides an opportunity to estimate an upper bound on the public’s willingness to trade off wealth for a change in the probability of death. Our estimates indicate that the adoption of the 65‐mph limit increased speeds by approximately 4 percent, or 2.5 mph, and fatality rates by roughly 35 percent. Together, the estimates suggest that about 125,000 hours were saved per lost life. When the time saved is valued at the average hourly wage, the estimates imply that adopting states were willing to accept risks that resulted in a savings of $1.54 million (1997 dollars) per fatality, with a sampling error roughly one‐third this value. We set out a simple model of states' decisions to adopt the 65‐mph limit that turns on whether their savings exceed their value of a statistical life. The empirical implementation of this model supports the claim that $1.54 million is an upper bound, but it provides imprecise estimates of the value of a statistical life.

The dramatic reduction in the black–white earnings gap from 1965 to 1975 represents the most significant period of economic progress for African-Americans in the post World War II era. After 25 years of contentious research, economists have arrived at a consensus that Title VII of the 1964 Civil Rights Act, which outlawed employment discrimination, was a major factor underlying the post-1965 trend break in relative earnings (John J. Donahue and James J. Heckman, 1991; David Card and Alan Krueger, 1993). A key piece of supporting evidence is that most gains were concentrated among black workers in the South, where Title VII had its biggest impact. The mortality rate of black infants relative to white infants is another clearly important measure of the relative well-being of AfricanAmericans. Surprisingly, and in contrast to the relative-earnings literature, there are very few studies that focus on long-run trends in the relative health of black infants over time. In addition, the existing research is based on highly aggregated data, both across regions and over time, which provide little information on the precise location and timing of infant mortality changes by race. Consequently, the evidence on the specific factors underlying significant changes in black–white infant health outcomes is sparse and often anecdotal. An examination of infant death rates within a year of birth for whites and nonwhites and the nonwhite–white infant-mortality-rate (IMR) ratio from 1933–1990 in the United States reveals many striking patterns (figure available from authors upon request). Immediately before World War II, about 4.1 percent of white infants and 7.5 percent of black infants died within a year of birth. During World War II, there was a large decline in black infant mortality rates and in the black–white ratio. Since World War II there has been a secular increase in the black– white IMR ratio with one notable exception. In the narrow period of 1965–1970, the black IMR and the black–white ratio declined sharply relative to preexisting trends. Relatively stable during 1961–1965, the black IMR fell 30 percent from 4.0 (per 100 live births) in 1965 to 2.8 in 1971. At the same time, the black–white ratio fell from 1.9 to 1.65, the only prolonged convergence in the post-World War II era. The national patterns suggest that 1965–1970 is the key period for improvements in the relative health of black infants over the past 50 years. This study examines trends in black– white rates of infant death during 1955–1975. To document the location of the improvements, we collected data by race at the state and rural– urban levels, which has not been previously done. Using simple descriptive models, we find † Discussants: David Meltzer, University of Chicago and NBER; Kenneth Chay, University of California–Berkeley and NBER; Jeffrey Grogger, University of California–Los Angeles and NBER; Dan Black, Syracuse University.

We exploit the structure of the Clean Air Act to provide new evidence on the capitalization of total suspended particulates (TSPs) air pollution into housing values. This legislation imposes strict regulations on polluters in “nonattainment” counties, which are defined by concentrations of TSPs that exceed a federally set ceiling. TSPs nonattainment status is associated with large reductions in TSPs pollution and increases in county‐level housing prices. When nonattainment status is used as an instrumental variable for TSPs, we find that the elasticity of housing values with respect to particulates concentrations ranges from −0.20 to −0.35. These estimates of the average marginal willingness to pay for clean air are robust to quasi‐experimental regression discontinuity and matching specification tests. Further, they are far less sensitive to model specification than cross‐sectional and fixed‐effects estimates, which occasionally have the “perverse” sign. We also find modest evidence that the marginal benefit of reductions of TSPs is lower in communities with relatively high pollution levels, which is consistent with preference‐based sorting. Overall, the improvements in air quality induced by the mid‐1970s TSPs nonattainment designation are associated with a $45 billion aggregate increase in housing values in nonattainment counties between 1970 and 1980.

This paper uses the housing market to develop estimates of the local welfare impacts of Superfund-sponsored cleanups of hazardous waste sites. We show that if consumers value the cleanups, then the hedonic model predicts that they will lead to increases in local housing prices and new home construction, as well as the migration of individuals that place a high value on environmental quality to the areas near the improved sites. We compare housing market outcomes in the areas surrounding the first 400 hazardous waste sites chosen for Superfund cleanups to the areas surrounding the 290 sites that narrowly missed qualifying for these cleanups. We find that Superfund cleanups are associated with economically small and statistically insignificant changes in residential property values, property rental rates, housing supply, total population, and types of individuals living near the sites. These findings are robust to a series of specification checks, including the application of a regression discontinuity design based on knowledge of the selection rule. Overall, the preferred estimates suggest that the local benefits of Superfund cleanups are small and appear to be substantially lower than the $43 million mean cost of Superfund cleanups.

Using the most comprehensive developing country dataset ever compiled on air and water pollution and environmental regulations, the paper assesses India's environmental regulations with a difference-in-differences design. The air pollution regulations are associated with substantial improvements in air quality. The most successful air regulation resulted in a modest but statistically insignificant decline in infant mortality. In contrast, the water regulations had no measurable benefits. The available evidence leads us to cautiously conclude that higher demand for air quality prompted the effective enforcement of air pollution regulations, indicating that strong public support allows environmental regulations to succeed in weak institutional settings.