Defensive Investments and the Demand for Air Quality: Evidence from the Nox Budget Program and Ozone Reductions
68 Pages Posted: 31 Aug 2013
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.
Keywords: pharmaceuticals, ozone, cap and trade, willingness to pay for air quality, mortality, compensatory behavior, human health
JEL Classification: H4, I1, Q4, Q5, D1
Suggested Citation: Suggested Citation