Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program and Ozone Reductions
AbstractWillingness to pay for air quality is a function of health and the costly defensive investments that contribute to health, but there is little research assessing the empirical importance of defensive investments. The setting for this paper is a large US emissions cap and trade market – the NOx Budget Trading Program (NBP) – that has greatly reduced NOx emissions since its initiation in 2003. Using rich quasi-experimental variation, we find that the reductions in NOx emissions decreased the number of summer days with high ozone levels by about 25%. The NBP also led to reductions in expenditures on prescription pharmaceutical expenditures of about 1.9%. Additionally, the summer mortality rate declined by approximately 0.5%, indicating that there were about 2,200 fewer premature deaths per summer, mainly among individuals 75 and older. The monetized value of the reductions in pharmaceutical purchases and mortality rates are each roughly $900 million annually, suggesting that defensive investments are a significant portion of willingness to pay for air quality. Finally, we cautiously conclude that the reductions in ozone are the primary channel for these reductions in defensive investments and mortality rates, which indicates that willingness to pay for ozone reductions is larger than previously understood.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18267.
Date of creation: Aug 2012
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- Deschenes, Olivier & Greenstone, Michael & Shapiro, Joseph S., 2013. "Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program and Ozone Reductions," IZA Discussion Papers 7557, Institute for the Study of Labor (IZA).
- D1 - Microeconomics - - Household Behavior
- H4 - Public Economics - - Publicly Provided Goods
- I1 - Health, Education, and Welfare - - Health
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
- Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-ENE-2012-08-23 (Energy Economics)
- NEP-ENV-2012-08-23 (Environmental Economics)
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