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American Economic Review Vol. 107 No. 10 2017

Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program

Olivier Deschênes1; Michael Greenstone2; Joseph Shapiro3

1 Department of Economics, University of California, 2127 North Hall, Santa Barbara, CA 93106, IZA, and NBER (email: ) · 2 Department of Economics, University of Chicago, 1126 E. 59th Street, Chicago, IL 60637, and NBER (email: ) · 3 Department of Economics, Yale University, 37 Hillhouse Avenue, New Haven, CT 06511, and NBER (email: )

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Abstract

The demand for air quality depends on health impacts and defensive investments, but little research assesses the empirical importance of defenses. A rich quasi-experiment suggests that the Nitrogen Oxides (NO x ) Budget Program (NBP), a cap-and-trade market, decreased NO x emissions, ambient ozone concentrations, pharmaceutical expenditures, and mortality rates. The annual reductions in pharmaceutical purchases, a key defensive investment, and mortality are valued at about $800 million and $1.3 billion, respectively, suggesting that defenses are over one-third of willingness-to-pay for reductions in NO x emissions. Further, estimates indicate that the NBP's benefits easily exceed its costs and that NO x reductions have substantial benefits.

DOI
10.1257/aer.20131002
Volume
107
Issue
10
Pages
2958-2989
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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