Working Paper: NBER ID: w18267
Authors: Olivier Deschênes; Michael Greenstone; Joseph S. Shapiro
Abstract: Willingness to pay for air quality is a function of health and the costly defensive investments that contribute to health, but there is little research assessing the empirical importance of defensive investments. The setting for this paper is a large US emissions cap and trade market - the NOx Budget Trading Program (NBP) - that has greatly reduced NOx emissions since its initiation in 2003. Using rich quasi-experimental variation, we find that the reductions in NOx emissions decreased the number of summer days with high ozone levels by about 25%. The NBP also led to reductions in expenditures on prescription pharmaceutical expenditures of about 1.9%. Additionally, the summer mortality rate declined by approximately 0.5%, indicating that there were about 2,200 fewer premature deaths per summer, mainly among individuals 75 and older. The monetized value of the reductions in pharmaceutical purchases and mortality rates are each roughly $900 million annually, suggesting that defensive investments are a significant portion of willingness to pay for air quality. Finally, we cautiously conclude that the reductions in ozone are the primary channel for these reductions in defensive investments and mortality rates, which indicates that willingness to pay for ozone reductions is larger than previously understood.
Keywords: Air Quality; Defensive Investments; NOx Budget Program; Ozone Reductions; Health Outcomes
JEL Codes: D1; H4; I1; Q4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decrease in the number of summer days with high ozone levels (Q54) | Reductions in ozone concentrations (Q54) |
| Reductions in ozone concentrations (Q54) | Improved health outcomes (I14) |
| NBP (F33) | Decline in summertime mortality rate (I12) |
| Reductions in ozone concentrations (Q54) | Reductions in defensive investments (H56) |
| Mean summer ozone (C29) | Elasticity of medication purchases (D12) |
| Mean summer ozone (C29) | Elasticity of mortality (J17) |
| NBP (F33) | Reduction in pharmaceutical expenditures (H51) |
| Reductions in NOx emissions from the NBP (Q52) | Decrease in the number of summer days with high ozone levels (Q54) |