Defensive Investments and the Demand for Air Quality: Evidence from the Nox Budget Program and Ozone Reductions
68 Pages Posted: 31 Aug 2013
There are 4 versions of this paper
Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program
Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program
Defensive Investments and the Demand for Air Quality: Evidence from the Nox Budget Program and Ozone Reductions
Defensive Investments and the Demand for Air Quality: Evidence from the Nox Budget Program and Ozone Reductions
Abstract
Demand for air quality depends on health impacts and defensive investments that improve health, but little research assesses the empirical importance of defenses. We study an important cap-and-trade market, which dramatically reduced NOx emissions, a key ingredient in ozone formation. A rich quasi-experiment reveals that it decreased summertime ozone, pharmaceutical expenditures, and mortality rates. Reductions in pharmaceutical purchases and mortality are each valued at $900 million annually, suggesting that defensive investments are a substantial portion of willingness-to-pay. We cautiously conclude that ozone reductions are the primary channel for these effects, implying that ozone's costs are larger than previously understood.
Keywords: pharmaceuticals, ozone, cap and trade, willingness to pay for air quality, mortality, compensatory behavior, human health
JEL Classification: H4, I1, Q4, Q5, D1
Suggested Citation: Suggested Citation
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