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Economic Geography and the Efficiency of Environmental Regulation

Author

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  • Alex Hollingworth
  • Taylor Jaworski
  • Carl Kitchens
  • Ivan Rudik

Abstract

We develop a spatial equilibrium model to evaluate the efficiency and distributional impacts of the leading air quality regulation in the United States: the National Ambient Air Quality Standards (NAAQS). We link our economic model to an integrated assessment model for air pollutants which allows us to capture endogenous changes in emissions, amenities, labor, and production. Our results show that the NAAQS generate over $23 billion of annual welfare gains. This is roughly 80 percent of welfare gains of the second-best NAAQS design, but only 25 percent of the first-best emission pricing policy. The NAAQS benefits are concentrated in a small set of cities, impose substantial costs on manufacturing workers, improve amenities in counties in compliance with the NAAQS, and reduce emissions in compliance counties through general equilibrium channels. These findings highlight the importance of accounting for geographic reallocation and equilibrium responses when quantifying the effects of environmental regulation.

Suggested Citation

  • Alex Hollingworth & Taylor Jaworski & Carl Kitchens & Ivan Rudik, 2022. "Economic Geography and the Efficiency of Environmental Regulation," CESifo Working Paper Series 9644, CESifo.
  • Handle: RePEc:ces:ceswps:_9644
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    More about this item

    Keywords

    Clean Air Act; environmental quality; economic geography;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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