Gas, weed, and fumes: Three essays in empirical environmental economics

This dissertation presents a three-part study in modern empirical environmental economics. In these three studies, I focus on five core economic issues—equity, incentives, environmental quality, consumer behavior, and causality—and ask what environmental economics can teach us about three common topics: energy consumption, cannabis legalization, and pesticide application./nThe first chapter examines how residential natural gas consumers respond to changes in the price of natural gas. With 70 million consumers, residential natural gas has grown to a first-order policy issue. This first chapter provides the first causally identified, microdata-based estimates of residential natural-gas demand elasticities using a panel of 300 million bills in California. To overcome multiple sources of endogeneity, we employ a two-pronged strategy: we interact (1) a spatial discontinuity along the service areas of two major natural-gas utilities with (2) an instrumental-variables strategy using the utilities' differing rules/behaviors for internalizing upstream spot-market prices. We then demonstrate substantial seasonal and income-based heterogeneities underly this elasticity. These heterogeneities suggest unexplored policies that are potentially efficiency-enhancing and pro-poor./nThe second chapter explores what may be unintended—or unconsidered—results of cannabis legalization. Cannabis legalization advocates often argue that cannabis legalization offers the potential to reduce the private and social costs related to criminalization and incarceration—particularly for marginalized populations. While this assertion is theoretically plausible, it boils down to an empirically testable hypothesis that remains untested: does legalizing a previously illegal substance (cannabis) reduce arrests, citations, and general law-enforcement contact? The second chapter of this dissertation provides the first causal evidence that cannabis legalization need not necessarily reduce criminalization—and under the right circumstances, may in fact increase police incidents/arrests for both cannabis products and non-cannabis drugs. First, I present a theoretical model of police effort and drug consumption that demonstrates the importance of substitution and incentives for this hypothesis. I then empirically show that before legalization, drug-incident trends in Denver, Colorado matched trends in many other US cities. However, following cannabis legalization in Colorado, drug incidents spike sharply in Denver, while trends in comparison cities (unaffected by Colorado's legalization) remain stable. This spike in drug-related police incidents occurs both for cannabis and non-cannabis drugs. Synthetic-control and difference-in-differences empirical designs corroborate the size and significance of this empirical observation, estimating that Colorado's legalization of recreational cannabis nearly doubled police-involved drug incidents in Denver. This chapter's results present important lessons for evaluating the effects and equity of policies ranging legalization to criminal prosecution to policing./nFinally, the third chapter investigates the roles pesticides play in local air quality. Many policymakers, public-health advocates, and citizen groups question whether current pesticide regulations properly equate the marginal social costs of pesticide applications to their marginal social benefits—with particular concern for negative health effects stemming from pesticide exposure. Additionally, recent research and policies in public health, epidemiology, and economics emphasize how fine particulate matter (PM2.5) concentrations harm humans through increased mortality, morbidity, mental health issues, and a host of socioeconomic outcomes. This chapter presents the first empirical evidence that aerially applied pesticides increase local PM2.5 concentrations. To causally estimate this effect, I combine the universe of aerial pesticide applications in the five southern counties of California's San Joaquin Valley (1.8M reports) with the U.S. EPA's PM2.5 monitoring network—exploiting spatiotemporal variation in aerial pesticide applications and variation in local wind patterns. I find significant evidence that (upwind) aerial pesticide applications within 1.5km increase local PM2.5 concentrations. The magnitudes of the point estimates suggest that the top decile of aerial applications may sufficiently increase local PM2.5 to warrant concern for human health./nJointly, the three parts of this dissertation aim to carefully administer causally minded econometrics, in conjunction with environmental economic theory, to answer unresolved, policy-relevant questions.

Advisor: Auffhammer, Maximilian