Spatial Economics Seminar Amsterdam

Nicolai Kuminoff (Arizona State University, United States)
Thursday, 11 May 2017

Dementia is one of the most terrifying and expensive shocks to human health. In its most common form—Alzheimer’s disease—patients experience a progressive decline of their cognitive and functional skills. The medical literature demonstrates that ambient air pollution is positively associated with dementia rates in particular cohorts and geographic locales. Our study is the first nationally representative longitudinal cohort study of how long term exposure to air pollution affects cognitive decline and financial decision making among the elderly. We link millions of administrative records from the U.S. Centers for Medicare and Medicare Services to information on spatial sorting in the housing market over a 15 year period to estimate how long term exposure to particulate matter and other federally regulated air pollutants affects cognitive impairment and financial decision making. Preliminary results suggest that a 10 microgram per cubic meter increase in 10-year annual average exposure to fine particulates (pm2.5) increases the probability of being diagnosed with dementia by 1-2 percentage points (a 10% to 20% increase). Impaired cognitive functioning translates into poorer financial decisions. We find that the same 10 microgram increase in long-term exposure to pm2.5 causes Medicare Part D enrollees to leave $20 more on the table each year when choosing prescription drug insurance plans and leads to a 5% to 10% increase in the probability that they enroll in dominated plans, violating basic axioms of consumer preference theory. Our results imply that a 10% reduction in national average pm2.5 would reduce dementia-related medical expenditures in the US by $3 billion annually. Joint with Kelly Bishop (Arizona State University Economics Dept.) and Jonathan Ketcham (Arizona State University Marketing Dept.).