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

Olivier Deschenes, Michael Greenstone () and Joseph S. Shapiro

American Economic Review, 2017, vol. 107, issue 10, 2958-89

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 (NOx) Budget Program (NBP), a cap-and-trade market, decreased NOx 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 NOx emissions. Further, estimates indicate that the NBP's benefits easily exceed its costs and that NOx reductions have substantial benefits.

JEL-codes: I12 Q51 Q53 Q58 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20131002
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