The Missing Benefits of Clean Water and the Role of Mismeasured Pollution

David A. Keiser
June 2018  [18-WP 581]

Although the U.S. spends billions of dollars a year controlling water pollution, there is little empirical evidence of comparable benefits. This study argues that measurement error in pollution data causes benefits to be underestimated. Using upstream concentrations as instrumental variables for local concentrations, the study finds substantial benefits from reducing nutrient pollution. Instrumental variable estimates of the effects of phosphorus on recreational use are an order of magnitude larger than conventional estimates. The study uses a long-term pollution dataset from Iowa to show that this difference is consistent with estimates of measurement error in several U.S. water pollution datasets.

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