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

Olivier Deschenes, Michael Greenstone and Joseph Shapiro

No 7557, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Demand for air quality depends on health impacts and defensive investments that improve health, but little research assesses the empirical importance of defenses. We study an important cap-and-trade market, which dramatically reduced NOx emissions, a key ingredient in ozone formation. A rich quasi-experiment reveals that it decreased summertime ozone, pharmaceutical expenditures, and mortality rates. Reductions in pharmaceutical purchases and mortality are each valued at $900 million annually, suggesting that defensive investments are a substantial portion of willingness-to-pay. We cautiously conclude that ozone reductions are the primary channel for these effects, implying that ozone's costs are larger than previously understood.

Keywords: willingness to pay for air quality; cap and trade; ozone; pharmaceuticals; mortality; compensatory behavior; human health (search for similar items in EconPapers)
JEL-codes: D1 H4 I1 Q4 Q5 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2013-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-res
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Citations: View citations in EconPapers (11)

Published - published as 'Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program' in: American Economic Review, 2017, 107 (10), 2958–2989)

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Working Paper: Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program and Ozone Reductions (2012)
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