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GTAP Resource #5050

"Modeling the Economy-Wide Benefits of Improvements in Air Quality: Human Capital, Willingness to Pay, and the Role of Spatial Resolution"
by Marten, Alex

Improvements in air quality can provide substantial benefits to society, and being able to analyze the size and nature of those benefits is paramount to understanding when the social costs of pollution abatement are warranted. There has been substantial research studying the impact of changes in air quality on human health and households’ willingness to pay for marginal changes in the incidence of negative health outcomes. However, most of this work has been conducted without considering behavioral responses to the policy. Introducing environmental quality into production and household behavior at an economy-wide scale is an area of applied analysis that is relatively new, and the majority of studies in this limited group have still implicitly incorporated the effect of environmental quality on human health as separable in the utility function or as a scaling of the time endowment due to reduced mortality rates. As a result these general equilibrium studies have found benefits of improved air quality that are an order of magnitude less than partial equilibrium estimates of willingness to pay.
We provide a number of contributions to the understanding of the economy-wide benefits of improvements in air quality and the use of CGE models in applied environmental policy analysis. First, we demonstrate that the order of magnitude difference between traditional partial equilibrium estimates of the benefits of improved air quality and more recent general equilibrium estimates is analogous to previous debates on the difference between the value of human capital and household’s willingness to pay for marginal changes in risk reductions. This finding makes clear the aspects of changes in health incidence that have been left out of previous CGE analyses of the benefits of air quality improvements, and allows us to make a second contribution by introducing a method for calibrating CGE models that are consistent with the literature on the value of marginal risk reductions.

Resource Details (Export Citation) GTAP Keywords
Category: 2016 Conference Paper
Status: Published
By/In: Presented at the 19th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2016
Version: 1
Created: Marten, A. (4/15/2016)
Updated: Marten, A. (7/26/2016)
Visits: 746
- Health
- Domestic policy analysis
- Other data bases and data issues
- North America

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