Assessing the Benefits of Air-Quality Improvements in General Equilibrium: A Review

The vast majority of existing attempts to measure the benefits and costs of air-quality regulations assume no interaction between the behavioral responses that determine the market-based costs of these policies and the targeted environmental benefits themselves. Nevertheless, general equilibrium theory suggests a number of channels through which important interdependencies might arise, including health impacts on labor supply and the demand for medical care, complementarities between air quality and demand for leisure activities, and interactions between multiple services derived from a common, impacted ecosystem. We develop a unified theoretical framework to assess the nascent literature focused on incorporating air-quality impacts into general equilibrium models. Our primary focus is on quantitative studies employing computable general equilibrium (CGE) models. We conclude by identifying priorities for future research in this field.