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

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Author Info

  • Deschenes, Olivier

    ()
    (University of California, Santa Barbara)

  • Greenstone, Michael

    ()
    (MIT)

  • Shapiro, Joseph S.

    ()
    (Yale University)

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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7557.

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Length: 68 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7557

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Related research

Keywords: pharmaceuticals; ozone; cap and trade; willingness to pay for air quality; mortality; compensatory behavior; human health;

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Cited by:
  1. Joshua Graff Zivin & Matthew Neidell, 2013. "Environment, Health, and Human Capital," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 689-730, September.
  2. Janet Currie & Lucas Davis & Michael Greenstone & Reed Walker, 2013. "Do Housing Prices Reflect Environmental Health Risks? Evidence From More Than 1600 Toxic Plant Openings And Closings," Working Papers 13-14, Center for Economic Studies, U.S. Census Bureau.
  3. Meredith Fowlie & Nicholas Muller, 2013. "Market-based Emissions Regulation When Damages Vary Across Sources: What Are the Gains from Differentiation?," NBER Working Papers 18801, National Bureau of Economic Research, Inc.

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