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Open Access Publications from the University of California

Defensive investments and the demand for air quality: Evidence from the NOx budget program

  • Author(s): Deschênes, O
  • Greenstone, M
  • Shapiro, JS
  • et al.

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 NOxemissions, 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 $1.3 billion, respectively, suggesting that defenses are over one-third of willingness-to-pay for reductions in NOxemissions. Further, estimates indicate that the NBP's benefits easily exceed its costs and that NOxreductions have substantial benefits.

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