General equilibrium benefits for environmental improvements: projected ozone reductions under EPAʹs Prospective Analysis for the Los Angeles air basin

This research demonstrates how locational equilibrium models can be used for benefit measurement with the detail required to match EPAʹs benefit analysis for the first Prospective Analysis. Using the projected changes in ozone concentrations for 2000 and 2010 together with the Sieg et al. (Int. Econ. Rev., forthcoming) estimates for household preferences for housing, education, and air quality, this paper measures general equilibrium willingness to pay for the policy scenarios developed for the Prospective study as they relate to households in the Los Angeles area. Benefits are evaluated taking account (at the household level) of initial air quality conditions, relocation based on changes in ozone, and price changes. The framework generalizes the partial equilibrium/general equilibrium comparisons available with conventional computable general equilibrium and property capitalization models. Estimated general equilibrium gains from the policy range from $33 to $2400 annually at a household level (in 1990 dollars).