Optimal investment to control ‘red air day’ episodes: lessons from Northern Utah, USA

Ramjee Acharya and Arthur Caplan

Journal of Environmental Economics and Policy, 2020, vol. 9, issue 2, 227-250

Abstract: We address the issue of optimal investment in ‘preventative capital’ to mitigate episodic, mobile-source air pollution events by calibrating an endogenous-risk model with parameter estimates obtained from a unique dataset related to ‘red air day’ episodes occurring during the winter months in Northern Utah. Our analysis demonstrates that, under a wide range of circumstances, the optimal steady-state level of preventative capital stock – raised through the issuance of a municipal ‘clean air bond’ that provides foundational funding for more aggressive mitigation efforts – can meet the standard for PM2.5 concentrations with positive social net benefits. We estimate benefit-cost ratios ranging between 3.1:1 and 11.3:1, depending upon trip-count elasticity with respect to preventative capital stock. These ratios are clustered in the lower end of the range estimated for the 1990 Clean Air Act Amendments in general.

Date: 2020
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DOI: 10.1080/21606544.2019.1666747

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