Nber Working Paper Series Environment, Health, and Human Capital

In this review, we discuss three major contributions economists have made to our understanding of the relationship between the environment and individual well-being. First, in explicitly recognizing how optimizing behavior, particularly in the form of residential sorting, can lead to non-random assignment of pollution, economists have employed a wide range of quasi-experimental techniques to develop causal estimates of the effect of pollution. Second, economic research has placed a considerable focus on the role of avoidance behavior, which is an important component for understanding the difference between biological and behavioral effects of pollution and for proper welfare calculations. Lastly, economic research has expanded the focus of analysis beyond traditional health outcomes to include measures of human capital, including labor supply, productivity, and cognition. Our review of the quasi-experimental evidence on this topic suggests that pollution does indeed have a wide range of effects on individual well-being, even at levels well below current regulatory standards. Given the importance of health and human capital as an engine for economic growth, these findings underscore the role of environmental conditions as an important factor of production. Joshua Graff Zivin University of California, San Diego 9500 Gilman Drive, MC 0519 La Jolla, CA 92093-0519 and NBER [email protected] Matthew Neidell Department of Health Policy and Management Columbia University 722 W 168th Street, 6th Floor New York, NY 10032 and NBER [email protected]