Bounds, Benefits, and Bad Air: Welfare Impacts of Pollution Alerts
Though air-quality alert systems (AQAS) cover more than 1.7 billion people worldwide, there has been little welfare analysis of these systems. This paper presents a theoretical framework for deriving lower bounds on the net benefits of an AQAS and applies it to a South Korean system currently covering over 51 million people. Estimating a regression discontinuity design, we find that an alert issuance reduced youth respiratory expenditures by 30% and adult cardiovascular expenditures by 23%. The overall system reduced externalized health expenditures by 28.6 million dollars during 2016–2017, with a minimum benefit-cost ratio of 7.1:1. Including dynamic impacts of alerts increases the minimum benefits (benefit-cost ratio) to 36.7 million dollars (9.2:1). Our findings imply that the AQAS generates significant net benefits and suggests that manipulation of air quality data, which has been observed in other contexts, may negatively impact social welfare.
We appreciate the valuable comments from the participants of Environment and Resource Economics seminar at UC Berkeley and the members of Global Policy Laboratory at the same institution. We also send our gratitude to Solomon Hsiang, Joseph Shapiro, Reed Walker, Alejandro Favela Nava, Jenya Kahn-lang, and Andrew Wilson for their helpful comments. We thank Seungyoon Kim for his research assistance. The Global Policy Laboratory at University of California, Berkeley supported the purchase of access to the dataset used in this analysis. This study analyzed secondary data on human subjects under Korea National Institute for Bioethics Policy IRB P01-201811-22-008. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.