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

Approaches in addressing non-random assignment of air pollution

• Chay and Greenstone

  • recession-induced pollution shocks

Use geographic variation in the effects of 1981-1982 recession

• compare changes in infant mortality rates in counties with large vs small decrease in total suspended particulates (TSP) in narrow time window

Advantages:

• substantial sharp variation in TSPs across counties

• few confounding changes in other observed factors

• low migration rates of pregnant women and infants

• infant deaths represent large loss in life expectancy

Approaches in addressing non-random assignment of air pollution

• Moretti and Neidell

  • far away drivers of air pollution

Estimate health effects of ozone using unpredictable daily boat traffics into LA ports as instrumental variable for ozone layers

Advantages of using boat traffic as an instrument:

• ports single most polluting facility in LA metro area

  • more boats, more ozone

• most boats from overseas with unpredictable journey times

  • uncorrelated with other short-run determinants of health

  • exogenous variations

• boat traffic unobserved by residents

  • holds defensive behaviour fixed

  • residents will not change behaviour (ie: won’t suddenly stay indoors) when boat traffic increases

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.

Chen et al (2013)

• effects of TSPs on health in China

What is the empirical strategy?

Regression Discontinuity Design

• since pollution is not randomly assigned which can lead to OVB, the authors employed a geographic regression discontinuity (RD) approach

Huai River Heating Policy

• provided free winter heating through the provision of free coal to the north of China

  • creates a sharp geographic discontinuity in access to free coal-based heating

Chen et al (2013)

• effects of TSPs on health in China

What is the identifying assumption?

conditional on the included control variables, unobserved determinants of mortality change smoothly as they cross the Huai River

• no other factors that changed discontinuously at the Huai River boundary around the same time as the heating policy and also affect health outcomes

Chen et al (2013)

• effects of TSPs on health in China

What is the RD specification?

Chen et al (2013)

• effects of TSPs on health in China

What are the key findings?

• 5-year reduction in life expectancy in the North due to increased cardio-respiratory mortality, resulting in an estimated 2.5 billion life years lost

• Long-term exposure to an additional 100µg/m3 of TSPs was associated with a 14% increase in overall mortality rate and a 3-year reduction in life expectancy at birth, primarily driven by cardio-respiratory causes of death