Journal of Economic Literature (JEL) Code(s)
H40, I10, Q40
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.
Deschenes, Olivier; Greenstone, Michael; and Shapiro, Joseph S., "Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program" (2017). Cowles Foundation Discussion Papers. 198.