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.