Environment, Health, and Human Capital

In this review, we discuss three major contributions economists have made to our understanding of the relationship between the environment and individual well-being. First, in explicitly recognizing how optimizing behavior, particularly in the form of residential sorting, can lead to nonrandom assignment of pollution, economists have employed a wide range of quasi-experimental techniques to develop causal estimates of the effect of pollution. Second, economic research has placed a considerable focus on the role of avoidance behavior, which is an important component for understanding the difference between biological and behavioral effects of pollution and for proper welfare calculations. Lastly, economic…