The Morbidity Costs of Air Pollution: Evidence from Spending on Chronic Respiratory Conditions

Medical expenditures on respiratory ailments such as asthma and chronic obstructive pulmonary disease (COPD) exceed $75 billion annually in the US, and research demonstrates that exposure to air pollution can exacerbate symptoms from these diseases. How much of this spending is attributable to air pollution, and what are the welfare consequences of pollution-induced changes in expenditures? Despite the enormous scale of spending on respiratory diseases, there is little research in economics examining these questions related to morbidity. In this paper, we link household level data from the Medical Expenditure Panel Survey to concentrations of particulate matter across 23 US metropolitan areas for the years 1999-2003. Using an extensive set of fixed effects and an instrumental variables strategy, we find that a standard deviation increase in fine particulate matter increases spending on asthma and COPD by 12.7%. Our theoretical framing implies a lower bound willingness to pay for a reduction of this size that exceeds $9 billion annually.