80 Pages Posted: 17 Mar 2017 Last revised: 9 Apr 2017
Date Written: March 15, 2017
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: 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