Valuing Air Pollution’s Impact on Labor Productivity in General Equilibrium
Paper Number: 2025-02
Document Date: 1/2025
Author(s): Peter Maniloff and Andrew Schreiber
Subject Area(s): ambient air quality, health, modeling, economic impacts, distributional effects, valuation
JEL Classification: C68, D58, Q51, J24
Keywords: CGE, health, air pollution, labor productivity
Abstract: This paper assesses the welfare implications of air pollution induced labor productivity improvements in a computable general equilibrium framework. We document that labor market productivity changes associated with a one μg/m3 reduction in PM2.5 can have a large welfare impact. Variation in the existing econometric evidence produces a range of possible welfare effects equal to approximately $950-3000 per household per year which is 50-160% of the estimated mortality impacts. Accounting for general equilibrium effects increases the welfare effect by roughly 45% relative to a back of the envelope estimate. Allowing for sector-specific shocks or impacts to leisure preferences have little effect on aggregate results. We also find that the aggregate welfare effect is approximately proportional to the shock size.
This paper is part of the Environmental Economics Working Paper Series.
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