Wednesday, January 18, 2017

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

The 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 the NOx Budget Program (NBP), an important cap-and-trade market for nitrogen oxides (NOx) emissions, a key ingredient in ozone air pollution. A rich quasi-experiment suggests that the NBP decreased NOx emissions, ambient ozone concentrations, pharmaceutical expenditures, and mortality rates. Reductions in pharmaceutical purchases and mortality are valued at about $800 million and $1.5 billion annually, respectively, in a region covering 19 Eastern and Midwestern United States; these findings suggest that defensive investments account for more than one-third of the willingness-to-pay for reductions in NOx emissions. Further, the NBP’s estimated benefits easily exceed its costs and instrumental variable estimates indicate that the estimated benefits of NOx reductions are substantial.
nitrogen oxide cycle
by Olivier Deschenes 1, Michael Greenstone 2 and Joseph S. Shapiro 
1. University of California, Santa Barbara - College of Letters & Science - Department of Economics;
1. National Bureau of Economic Research (NBER); IZA Institute of Labor Economics
2. University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)
3. Yale University, Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation
Social Science Research Network (SSRN) www,
June 1, 2016, Number of Pages in PDF File: 74
Keywords: willingness to pay for air quality, cap and trade, ozone, pharmaceuticals, mortality, compensatory behavior, human health

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