The Distribution of Environmental Damages

Abstract

Most regulations designed to reduce environmental externalities impose costs on individuals and firms. An active body of research has explored how these costs are disproportionately born by different sectors of the economy and/or across different groups of individuals. However, much less is known about the distributional characteristics of the environmental benefits created by these policies, or conversely, the differences in environmental damages associated with existing environmental externalities. We review this burgeoning literature and develop a simple and general framework for focusing future empirical investigations. We apply our framework to findings related to the economic impact of air pollution, deforestation, and climate, highlighting important areas for future research. A recurring challenge to understanding the distributional effects of environmental damages is distinguishing between cases where (i) populations are exposed to different levels or changes in an environmental good, and (ii) where an incremental change in the environment may have very different implications for some populations. In the latter case, it is often difficult to empirically identify the underlying sources of heterogeneity in marginal damages, as damages may stem from either non-linear and/or heterogeneous damage functions. Nonetheless, understanding the determinants of heterogeneity in environmental benefits and damages is crucial for welfare analysis and policy design.

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