Document Type

Working Paper

Publication Date


Working Paper Number

WP #13006, March 2013


This paper shows how policies aimed at insuring health risks and those intended to improve the environment are (and should be) deeply intertwined. In the model economy, inspired by recent Chinese experience, pollution raises the likelihood of poor health in the future prompting agents to self insure against anticipated, rising medical expenses. The increased saving generates more capital while capital use by firms generates more pollution. Along the transition, such a pollution-growth nexus may be attractive from a capital-accumulation perspective; however, rising pollution, via the health channel, definitely hurts welfare. Availability of private health insurance to top up pay-as-you-go coverage of medical bills together with a Pigouvian tax on emissions can replicate the first best.

Publication Status

Published in Journal of Environmental Economics and Management, Vol. 71 (May 2015): 160-179.

JEL Classification

E2, O13

File Format



38 pages

Included in

Economics Commons