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

80 Pages Posted: 17 Mar 2017 Last revised: 9 Apr 2017

Olivier Deschenes

University of California, Santa Barbara - College of Letters & Science - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Michael Greenstone

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Joseph S. Shapiro

Yale University, Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Multiple version iconThere are 4 versions of this paper

Date Written: March 15, 2017

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.

Keywords: Health, NOx, Emissions

JEL Classification: H40, I10, Q40

Suggested Citation

Deschenes, Olivier and Greenstone, Michael and Shapiro, Joseph S., Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program (March 15, 2017). Cowles Foundation Discussion Paper No. 2086. Available at SSRN: https://ssrn.com/abstract=2933641

Olivier Deschenes (Contact Author)

University of California, Santa Barbara - College of Letters & Science - Department of Economics ( email )

Santa Barbara, CA 93106
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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IZA Institute of Labor Economics ( email )

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Michael Greenstone

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Joseph S. Shapiro

Yale University, Department of Economics ( email )

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New Haven, CT 06510
United States
203-432-5075 (Phone)
203-432-6323 (Fax)

HOME PAGE: http://economics.yale.edu/people/joseph-s-shapiro

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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