CFDP 2086

Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program


Publication Date: April 2017

Pages: 79


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.


Health, NOx, Emissions

JEL Classification Codes: H40, I10, Q40

JEL Classification Codes: H40I10Q40

See CFP: CFP 1566