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

Olivier Deschenes, Michael Greenstone and Joseph Shapiro

No 2086, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

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 $1.1 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.

Keywords: Health; NOx; Emissions (search for similar items in EconPapers)
JEL-codes: H40 I10 Q40 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2017-03
New Economics Papers: this item is included in nep-ene, nep-env and nep-hea
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Citations: View citations in EconPapers (201)

Published in American Economic Review (October 2017), 107(10): 2958-89

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