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

Author

Listed:
  • Deschenes, Olivier

    () (University of California, Santa Barbara)

  • Greenstone, Michael

    () (University of Chicago)

  • Shapiro, Joseph S.

    () (Yale University)

Abstract

Demand for air quality depends on health impacts and defensive investments that improve health, but little research assesses the empirical importance of defenses. We study an important cap-and-trade market, which dramatically reduced NOx emissions, a key ingredient in ozone formation. A rich quasi-experiment reveals that it decreased summertime ozone, pharmaceutical expenditures, and mortality rates. Reductions in pharmaceutical purchases and mortality are each valued at $900 million annually, suggesting that defensive investments are a substantial portion of willingness-to-pay. We cautiously conclude that ozone reductions are the primary channel for these effects, implying that ozone's costs are larger than previously understood.

Suggested Citation

  • 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).
  • Handle: RePEc:iza:izadps:dp7557
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    Cited by:

    1. Lanz, Bruno & Provins, Allan, 2017. "Using averting expenditures to estimate the demand for public goods: Combining objective and perceived quality," Resource and Energy Economics, Elsevier, vol. 47(C), pages 20-35.
    2. Lichter, Andreas & Pestel, Nico & Sommer, Eric, 2017. "Productivity effects of air pollution: Evidence from professional soccer," Labour Economics, Elsevier, vol. 48(C), pages 54-66.
    3. Joshua Graff Zivin & Matthew Neidell, 2013. "Environment, Health, and Human Capital," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 689-730, September.
    4. Koichiro Ito & Shuang Zhang, 2016. "Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China," NBER Working Papers 22367, National Bureau of Economic Research, Inc.
    5. Michael Greenstone & John A. List & Chad Syverson, 2011. "The Effects of Environmental Regulation on the Competiveness of U.S. Manufacturing," Working Papers 11-03, Center for Economic Studies, U.S. Census Bureau.
    6. Janet Currie & Lucas Davis & Michael Greenstone & Reed Walker, 2013. "Do Housing Prices Reflect Environmental Health Risks? Evidence from More than 1600 Toxic Plant Openings and Closings," NBER Working Papers 18700, National Bureau of Economic Research, Inc.
    7. Aragón, Fernando M. & Miranda, Juan Jose & Oliva, Paulina, 2017. "Particulate matter and labor supply: The role of caregiving and non-linearities," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 295-309.
    8. Prashant Bharadwaj & Matthew Gibson & Joshua Graff Zivin & Christopher Neilson, 2017. "Gray Matters: Fetal Pollution Exposure and Human Capital Formation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(2), pages 505-542.
    9. Tanaka, Shinsuke, 2015. "Environmental regulations on air pollution in China and their impact on infant mortality," Journal of Health Economics, Elsevier, vol. 42(C), pages 90-103.
    10. Alan I. Barreca & Matthew Neidell & Nicholas J. Sanders, 2017. "Long-Run Pollution Exposure and Adult Mortality: Evidence from the Acid Rain Program," NBER Working Papers 23524, National Bureau of Economic Research, Inc.
    11. Shapiro, Joseph S. & Walker, Reed, 2015. "Why is Pollution from U.S. Manufacturing Declining? The Roles of Trade, Regulation, Productivity, and Preferences," IZA Discussion Papers 8789, Institute for the Study of Labor (IZA).
    12. Fernando M. Aragon & Juan Jose Miranda & Paulina Oliva, 2016. "Particulate matter and labor supply: evidence from Peru," Discussion Papers dp16-01, Department of Economics, Simon Fraser University.
    13. David A. Keiser & Joseph S. Shapiro, 2017. "Consequences of the Clean Water Act and the Demand for Water Quality," NBER Working Papers 23070, National Bureau of Economic Research, Inc.
    14. Johnsen, Reid & LaRiviere, Jacob & Wolff, Hendrik, 2016. "Estimating Indirect Benefits: Fracking, Coal and Air Pollution," IZA Discussion Papers 10170, Institute for the Study of Labor (IZA).
    15. Bruno Lanz & Allan Provins, 2014. "The demand for tap water quality: Survey evidence on water hardness and aesthetic quality," CIES Research Paper series 23-2014, Centre for International Environmental Studies, The Graduate Institute.
    16. ITO Koichiro & ZHANG Shuang, 2016. "Willingness to Pay for Clean Air: Evidence from the air purifier markets in China," Discussion papers 16074, Research Institute of Economy, Trade and Industry (RIETI).
    17. Meredith Fowlie & Nicholas Muller, 2013. "Market-based Emissions Regulation When Damages Vary Across Sources: What Are the Gains from Differentiation?," NBER Working Papers 18801, National Bureau of Economic Research, Inc.
    18. Mu, Quan & Zhang, Junjie, 2014. "Air Pollution and Defensive Expenditures: Evidence from Particulate-Filtering Facemasks," University of California at San Diego, Economics Working Paper Series qt1bz8c9ms, Department of Economics, UC San Diego.
    19. Hélène Ollivier, 2016. "North–South Trade and Heterogeneous Damages from Local and Global Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(2), pages 337-355, October.
    20. Joseph S. Shapiro & Reed Walker, 2015. "Why is Pollution from U.S. Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," Cowles Foundation Discussion Papers 1982R2, Cowles Foundation for Research in Economics, Yale University, revised Aug 2017.
    21. Bernard, Sophie & Hotte, Louis & Winer, Stanley L., 2014. "Democracy, inequality and the environment when citizens can mitigate health consequences of pollution privately or act collectively," European Journal of Political Economy, Elsevier, vol. 34(C), pages 142-156.
    22. repec:gii:ciesrp:cies_rp_36rev is not listed on IDEAS
    23. Luechinger, Simon, 2014. "Air pollution and infant mortality: A natural experiment from power plant desulfurization," Journal of Health Economics, Elsevier, vol. 37(C), pages 219-231.
    24. Shuai Chen & Paulina Oliva & Peng Zhang, 2017. "The Effect of Air Pollution on Migration: Evidence from China," NBER Working Papers 24036, National Bureau of Economic Research, Inc.
    25. repec:eee:resene:v:49:y:2017:i:c:p:113-131 is not listed on IDEAS

    More about this item

    Keywords

    pharmaceuticals; ozone; cap and trade; willingness to pay for air quality; mortality; compensatory behavior; human health;

    JEL classification:

    • 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
    • D1 - Microeconomics - - Household Behavior

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