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Optimal investment to control ‘red air day’ episodes: lessons from Northern Utah, USA

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  • Ramjee Acharya
  • Arthur J. Caplan

Abstract

We address the issue of optimal investment in ‘preventative capital’ to mitigate episodic, mobile-source air pollution events by calibrating an endogenous-risk model with parameter estimates obtained from a unique dataset related to ‘red air day’ episodes occurring during the winter months in Northern Utah. Our analysis demonstrates that, under a wide range of circumstances, the optimal steady-state level of preventative capital stock – raised through the issuance of a municipal ‘clean air bond’ that provides foundational funding for more aggressive mitigation efforts – can meet the standard for PM2.5 concentrations with positive social net benefits. We estimate benefit-cost ratios ranging between 3.1:1 and 11.3:1, depending upon trip-count elasticity with respect to preventative capital stock. These ratios are clustered in the lower end of the range estimated for the 1990 Clean Air Act Amendments in general.

Suggested Citation

  • Ramjee Acharya & Arthur J. Caplan, 2020. "Optimal investment to control ‘red air day’ episodes: lessons from Northern Utah, USA," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 9(2), pages 227-250, April.
    • Handle: RePEc:taf:teepxx:v:9:y:2020:i:2:p:227-250
    DOI: 10.1080/21606544.2019.1666747
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