Defensive investments and the demand for air quality: Evidence from the NOx budget program
- Author(s): Deschênes, O
- Greenstone, M
- Shapiro, JS
- et al.
Published Web Locationhttps://doi.org/10.1257/aer.20131002
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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