The CAA

Question 1

Air pollution is an externality

Answer 1

Has effects on third parties that occur outside of market mechanisms

Question 2

Air pollution is unlikely to be dealt with via the Coase Theorem

Answer 2

1. It’s difficult for people to own the air
2. Air pollution is caused by and has effects on a huge number of people
   → Negotiation is virtually impossible

Question 3

the Clean Air Act

Answer 3

• main legislation that the U.S. uses to regulate air pollution
  -Covers almost all reg. done by the federal government
• first passed in 1963 & amended in the 1970, 1977, and 1990

Question 4

1970 Amendment

Answer 4

— Gave the gov. sweeping enforcement powers
—Established the Environmental Protection Agency (the EPA) = A federal agency dedicated to enforcement of environm. regulation

Question 5

1977 & 1990 Amendments

Answer 5

— Broadened the scope to cover additional air pollutants
— Caused a shift from “command-and-control” to market-based approaches (cap-and-trade systems)

Question 6

1990 Amendments

Answer 6

Updated frequently since 1990
— Obama’s Clean Power Plan to regulate carbon emissions
— But delayed by Trump and whittled down by the Supreme Court

Question 7

CAA main components

Answer 7

1. Regulation of “criteria” air pollutants
2. Banning of leaded gasoline
3. Emissions standards for automobiles
4. Regulation of “hazardous” air pollutants

Question 8

County-Level command-and-control regulations

Answer 8

— Sets air quality standards defining the max. allowable level
— Classifies counties as in attainment or nonattainment
— Forces nonattainment counties to reduce pollution
— Asks state gov. to develop a plan. Also can impose penalties

Question 9

Regional cap-and-trade systems

Answer 9

— Large-scale c&t systems that cover ec. activity in nearby states
I Meant to deal with the fact that air pollution can drift across borders
— Distribute fixed # of emissions permits; allow firms to trade
— Sulfur dioxide system enacted in 1990 to combat acid rain
— Nitrogen oxide system enacted in 2003

Question 10

Externality theory

Answer 10

Optimal level of pollution reduction where SMB of ↓ by one unit = SMC
⇒ Should recover SMB and SMC curves; see where they intersect but, in practice, is extremely difficult to recover social marginal curves

Question 11

Chay and Greenstone (2003)

Answer 11

— Pollution moved similarly in pre-period ⇒ setting allows a DiD
— DiD: CAA caused a 20 mg ↓ in pollution in nonatt. rel. to att. counties
— Other research finds that other CAA components also ↓ pollution

Question 12

Short Run Health Effects

Answer 12

CAA affected infant health only via its effects on pollution
→ 10% decline in particulates ⇒ 5% decline in infant mortality

Question 13

Isen, Rossin-Slater, and Walker (2017)

Answer 13

Use the same DiD as C&G (2003) but focus on different outcomes
— Identify people born in non/attainment counties just before/after 1971
— Assess whether being exposed to less pollution as a child causes people to
do better as adults
— 10% ↓ in childhood exposure to particulates ⇒ 1% ↑ in adult earnings and lower likelihood of being disabled

Question 14

Barreca, Neidell, and Sanders (2017)

Answer 14

Examine long-run effects of regulating sulfur dioxide (1990 amendments)
— DiD: Compare long-run health if lived near/far power plants before/after
— Regulation caused people to live longer
— Reduced annual mortality rates for adults by 5%

Question 15

Effects of air pollution on worker productivity (Graff-Zivin and Neidell (2012))

Answer 15

Examine the effect of spikes in air pollution on piece-rate ag. workers
— Piece-rate agricultural workers get paid by # fruits/vegetables they pick
— When pollution is at upper end of normal range, workers:
— Work for 20 minutes less in a day
— Pick 0.12 fewer s.d. worth of fruits and vegetables

Question 16

Effects of air pollution on childhood development

Answer 16

– High levels of lead in children’s blood affect brain development
– Econ papers find that high lead levels cause worse academic achievement, increased behavioral problems in school, and increased criminal activity in adulthood
– CAA banned leaded gas starting in 1995 , since then, there has been a ↓ in children’s lead levels

Question 17

Evaluating the CAA by comparing benefits w/ costs

Answer 17

Done by attaching monetary value on the benefits by either focusing on just the mortality benefits of the CAA or calculating the effect of the CAA on housing prices
– both of these options are limited by a lower bound for the total benefits

Question 18

Researchers can monetize mortality benefits in two steps

Answer 18

1. Estimate the effect of a regulation on avoided deaths - Multiply the estimate by the value of a life / year of life
2. Housing prices

Question 19

housing prices

Answer 19

After controlling for the characteristics of a house, the price captures willingness to pay to live in the area where the house is located
→ If people care about clean air, should be willing to pay more for it

Question 20

effects on housing prices underestimate total benefits

Answer 20

most people can’t either observe air quality or Understand the harms of air pollution

Question 21

Chay and Greenstone (2003b)

Answer 21

Use 1971 non/attainment DiD to calculate effects on housing prices
→ ↓ in pollution in nonattainment counties worth $45 billion in home values

Question 22

the cost of environmental regulation is

Answer 22

The monetized value of the reallocation of resources from the production of goods and services to pollution abatement activities”

Includes costs of plants spending money to reduce pollution; worthwhile projects that are not undertaken; less worthwhile projects that are undertaken; monitoring, and enforcement

Question 23

three categories of costs

Answer 23

1. Effects on impacted workers
2. Declines in profits
3. Increases in the prices of consumer goods

Question 24

Greenstone (2002)

Answer 24

Uses the 1971 DiD to study effects on manufacturing activity
— Compare manufacturing in non/attainment counties before/after 1971
→ ↑ regulation ⇒ ↓ manufac. From 1972-1987, nonattainment counties lost 590,000 jobs, $37 billion in capital stock, $75 billion in output

Question 25

Walker (2013)

Answer 25

— Obtains longitudinal employment data from the U.S. Census Bureau
— Studies regulations on manufacturing plants due to 1990 CAA amendment
— DiD comparing workers at plants that were/were not affected
→ By 2000, affected workers had lost a total of $5.4 billion in earnings

⇒ Environmental regulation can have significant costs & may be concentrated in particular areas or types of workers

Question 26

Loss in workers wages occurred due to

Answer 26

1. Long spells in unemployment
2. Lower salaries in the new jobs

Question 27

Costs of CAA

Answer 27

– Effects on affected workers: $5.4 billion during 1990-2000 (Walker 2013)
– Effects on consumer prices: unknown
– Effects on firm profits: unknown

Question 28

Benefits of CAA

Answer 28

– Mortality benefits: $134 billion/year (Barreca et al. 2017)
– Other benefits: unknown

Question 29

Currie & Walker CAA benefits

Answer 29

the CAA reduced pollution, and this improved health, productivity, earnings, and child development. The CAA also increased home values

Question 30

Currie & Walker CAA costs

Answer 30

the CAA reduced manufacturing in non-attainment counties. It also reduced employment and earnings for impacted workers. Finally, it may have had effects
on profits and consumer prices, but we have little evidence on this. In addition, since the
early 1980s (and until the Coronavirus Crisis), inflation has been low and profits have
risen dramatically. Thus, it is unlikely that the effects on these outcomes are large

Question 31

CAA distributional consequences - benefits

Answer 31

On the benefit side, low-income households are generally exposed to more pollution. Also, they are generally in worse health. This means that a given unit of pollution likely is more harmful for them than for high-income households. As a result of these facts, a reduction in overall pollution has disproportionate benefits for low-income households. First, it causes a relatively larger reduction in their exposure to pollution. Second, this compounds with their greater health benefits per unit of pollution reduction.

Question 32

CAA distributional consequences - costs

Answer 32

low-income households may suffer more when consumer prices rise.
They also may be more likely to have jobs that are lost due to the regulation, such as manufacturing jobs. Finally, they may be less able to switch jobs or to migrate to other areas if they become unemployed. Thus, they may bear more of the costs of regulation.