Economic Geography and Air Pollution Regulation in the United States

We develop a quantitative economic geography model with endogenous emissions, amenities, trade, and labor reallocation to evaluate the spatial impact of the leading air quality regulation in the United States: the National Ambient Air Quality Standards (NAAQS). We find that the NAAQS generate $40 billion in annual welfare gains, first-best emissions pricing would increase this by an additional $70 billion, gains are concentrated in a small set of cities, and improved amenities attract nonmanufacturing workers. Atmospheric transport of emissions, labor reallocation, and trade are first-order factors for quantifying the level and distribution of both costs and benefits of the NAAQS.