Optimal Environmental Health Regulations with Heterogeneous Populations: Treatment versus “Tagging”

In this paper, we develop a model of population level environmental health risk with individuals that are heterogeneous in their susceptibility to environmental toxins. This framework allows us to determine when it is optimal to target vulnerable subgroups of the population with special exposure-reducing treatments. Our analytic results show that the potential economic gains from targeted policies will depend critically on the quality of existing capital, the degree of returns to scale in treatment technologies, and the size and sensitivity of the vulnerable population. An empirical application of the model is extended to the case of cryptosporidium in drinking water supplies.