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

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Abstract

The demand for air quality depends on health impacts and defensive investments, but little research assesses the empirical importance of defenses. A rich quasi-experiment suggests that the Nitrogen Oxides (NOx) Budget Program (NBP), a cap-and-trade market, decreased NOx emissions, ambient ozone concentrations, pharmaceutical expenditures, and mortality rates. The annual reductions in pharmaceutical purchases, a key defensive investment, and mortality are valued at about $800 million and $1.1 billion, respectively, suggesting that defenses are over one-third of willingness-to-pay for reductions in NOx emissions. Further, estimates indicate that the NBP�s benefits easily exceed its costs and that NOx reductions have substantial benefits.

Suggested Citation

  • Olivier Deschenes & Michael Greenstone & Joseph S. Shapiro, 2017. "Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program," Cowles Foundation Discussion Papers 2086, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2086
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    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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