EC330 AT W2: Air pollution damages

What is the motivation of studying air pollution damages?

There is major threats of air pollution to life expectancy at an aggregate level

• if PM2.5 levels are following WHO guidelines, there is a gain in life expectancy

Understanding these motivations helps identify effective policies to mitigate health risks associated with air pollution.

Challenges in measuring social costs of air pollution externalities

1. air pollution is not assigned randomly

2. pollution is not monitored randomly

3. many air pollutants are correlated

   • damage functions often reflect interactive effects

   • different pollutants combine to affect ambient air quality

   • hence, cannot be linearly estimated because of the correlation

4. short and long run exposure may have different effects

   • short run variation in air pollution levels is helpful in obtaining unbiased estimates of effects

   • however, long run responses may be quite different and we care more about this!

5. many outcomes may be affected

   • health

     • life expectancy, respiratory disease

   • mental illness

   • suicide

   • labour productivity

   • labour supply

   • cognitive performance

   • school absenteesim

   • agricultural yields

   • defensive expenditures

What kind of bias may occur in estimating relationship between air pollution and health outcomes?

Upward bias

• people in polluted areas may have worse health for reasons unrelated to pollution ie: poverty, crime

Downward bias

• polluted areas are more economically active

• workers may have

  • higher incomes → better access to healthcare

  • younger populations → stronger immune systems

Why do we expect strategic behaviour in pollution monitoring?

firms may deliberately manipulate reported pollution levels to minimize regulatory scrutiny or avoid penalties.

• lead to underreporting or selective compliance, particularly in the presence of economic incentives or lax enforcement.