Willingness to pay for clean air in China

We use a residential sorting model incorporating migration disutility to recover the implicit value of clean air in China. The model is estimated using China Population Census Data along with PM2.5 satellite data. Our study provides new evidence on the willingness to pay for air quality improvements in developing countries and is the first application of an equilibrium sorting model to the valuation of non-market amenities in China. We employ two instrumental variables based on coal-fired electricity generation and wind direction to address the endogeneity of local air pollution. Results suggest important differences between the residential sorting model and a conventional hedonic model, highlighting the role of moving costs and the discreteness of the choice set. Our sorting results indicate that the economic value of air quality improvement associated with a one-unit decline in PM2.5 concentration is up to $8.83 billion for all Chinese households in 2005.     

The distribution of benefits from improvements in urban air quality

This paper analyzes the distribution of benefits from an air pollution control strategy for the Boston metropolitan area. Average benefits to seven income groups are measured by physical improvements in air quality and by dollar values, using housing value and health damage approaches to estimate willingness to pay. Benefits include those in the work environment as well as at home. Physical benefits at home are found to be greater for the poor rather than for the rich; when measured in monetary terms with workplace benefits included, however, the distribution is much less pro-poor.     

Property prices and the value of amenities

Implicit hedonic prices of amenities are estimated by means of a study of the variation in house prices in Sydney. The results include estimated hedonic prices for aircraft noise, road traffic, road widening, good views, spacious streets, good access to shops, and high quality neighborhoods. Since hedonic prices are the response of the market at the margin to supply as well as demand forces, they do not necessarily reflect average household willingness to pay prices. However, the paper concludes that they provide a basis from which the values of amenities to be used in benefit cost studies can be estimated.     

Negotiating housing deal on a polluted day: Consequences and possible explanations

The topic of air pollution has drawn considerable attention globally. In this paper, we examine the immediate effect of air pollution on a substantial decision, that is, a housing purchase. By linking housing purchasing behavior with the air quality in Beijing, we document market participants' behaviors unexplained by rational economic theories. Our main result suggests that the transaction prices on a severely polluted day are 0.65% higher than those of the days without pollution, other things being equal. This translates into approximately 3.51 million yuan daily increase based on the average transaction volume and price on a typical day in Beijing. The heterogeneity analysis further suggests that this effect is mostly driven by non-local and low income buyers. After ruling out rational explanations, we demonstrate that our empirical results are consistent with salience theory under weak assumptions.     

Measuring the benefits of air quality improvements: A hedonic salary approach

This paper estimates the compensating variation associated with nonmarginal changes in air quality using a hedonic salary model and 1970 data collected for a national sample of university professors. Recent advances in the theory of hedonic prices are utilized in constructing the theoretical model and formulating a procedure for generating empirical estimates. Lower bound estimates of the compensating variation associated with a one standard deviation increase in total suspended particulates (27.6 mgs/cu. meter/24 hours) were $419 for full professors, $234 for associate professors, and $209 for assistant professors in 1970. These results were not sensitive to the specification of the hedonic salary equation.     

General equilibrium benefits for environmental improvements: projected ozone reductions under EPA's Prospective Analysis for the Los Angeles air basin

This research demonstrates how locational equilibrium models can be used for benefit measurement with the detail required to match EPA's benefit analysis for the first Prospective Analysis. Using the projected changes in ozone concentrations for 2000 and 2010 together with the Sieg et al. (Int. Econ. Rev., forthcoming) estimates for household preferences for housing, education, and air quality, this paper measures general equilibrium willingness to pay for the policy scenarios developed for the Prospective study as they relate to households in the Los Angeles area. Benefits are evaluated taking account (at the household level) of initial air quality conditions, relocation based on changes in ozone, and price changes. The framework generalizes the partial equilibrium/general equilibrium comparisons available with conventional computable general equilibrium and property capitalization models. Estimated general equilibrium gains from the policy range from $33 to $2400 annually at a household level (in 1990 dollars).     

Valuing nature in a general equilibrium

We explore the consequences of modeling the demand for environmental quality improvements as a fully integrated part of a general equilibrium demand system in an applied general equilibrium (or CGE) analysis. Demand for non-market goods depends on a full range of relative prices as well as environmental outcomes. We simulate the effects of reducing two air pollutants to improve human health and three ecosystem services provided to households. The ecosystem services make non-separable contributions to household utility. We find that willingness to pay measures of use-based ecosystem services are impacted by changes in demand for complementary market goods. Demand for these goods shifts due to pollution reductions that enhance ecosystem services. Partial equilibrium estimates of these use values can be measured with substantial error if they fail to account for the general equilibrium adjustments caused by pollution. Over 300 calibrations of the model identify the model features important to these errors. We find that effects on ecosystem services associated with non-use values have important implications for the feedback effects on use related measures of economic tradeoffs. This is due to how our model integrates market and non-market effects, reflecting the non-market services importance to general equilibrium market outcomes.     

An integrated model of regional and local residential sorting with application to air quality

We examine the interconnectedness of demand for regionally and locally varying public goods using a residential sorting model. We propose a version of the model that describes household choices at the city (MSA) level and, conditional on city, the neighborhood (census tract) level. We use a two-stage budgeting argument to develop an empirically feasible sorting model that allows us to estimate preferences for regionally varying air quality while accounting for sorting at the local level. Our conceptual and empirical approach nests previous sorting models as special cases, allowing us to assess the importance of accounting for multiple spatial scales in our predictions for the cost of air pollution. Furthermore our preferred specification connects the city and neighborhood sorting margins to the upper and lower elements of a nested logit model, thereby establishing a useful correspondence between two stage budgeting and nested logit estimation. Empirically we find that estimates from a conventional model of sorting across MSAs imply a smaller marginal willingness to pay for air quality than estimates from our proposed model. We discuss how the difference is attributable in part to the omitted variable problems arising when tract level sorting is ignored.     

Averting expenditure and the cost of pollution

The paper considers the relationship between the willingness to pay for environmental quality and averting expenditures—that is, the costs of measures undertaken in efforts to counteract the consequences of pollution. The models used assume perfect mobility among locations with different levels of environmental quality. The major results are: (1) Averting expenditures are not in general a good measure of willingness to pay; (2) averting expenditures are not always even a lower bound on willingness to pay; (3) even when averting expenditures are a lower bound, the difference between the level of such expenditures and willingness to pay cannot be attributed to the unavertible “aesthetic” consequences of pollution.     

Do environmental right-to-know laws affect markets? Capitalization of information in the toxic release inventory

This paper investigates how information contained in the U.S. Environmental Protection Agency's Toxic Release Inventory (TRI) program, one of the largest environmental right-to-know programs, affects prices in the housing market. I use a strengthening of the reporting requirements for the chemical lead in 2001 as exogenous variation to test for housing price changes near existing firms who must now report. Using a difference-in-differences specification, I find that listing an existing firm in the Toxic Release Inventory lowers housing prices up to 11% within approximately 1 mile. The results suggest that housing market participants do capitalize into prices at least some information conveyed by the TRI program.     

Happiness in the air: How does a dirty sky affect mental health and subjective well-being?

Previous studies evaluating the welfare cost of air pollution have not paid much attention to its potential effect on mental health and subjective well-being (SWB). This paper attempts to fill the gap by investigating the impact of air pollution on several key dimensions, including mental health status, depressive symptoms, moment-to-moment happiness, and evaluative happiness. We match a nationwide longitudinal survey in China with local air quality and rich weather conditions according to the exact time and place of survey. By making use of variations in exposure to air pollution for the same individuals over time, we show that air pollution reduces hedonic happiness and increases the rate of depressive symptoms, while life satisfaction has little to do with the immediate air quality. Our results shed light on air pollution as an important contributor to the Easterlin paradox that economic growth may not bring more happiness.     

Combining Intended Demand and Yes/No Responses in the Estimation of Contingent Valuation Models

The contingent valuation method (CVM) has limitations arising from the lack of a direct link between estimated willingness to pay and consumer behavior regarding the use of the good being evaluated. To estimate the total value of a resource under a capacity constraint, information on intended use is introduced as an integral part of the CVM. This combined approach allows use and non-use values to be distinguished for a sample of users and non-users. The econometric specification is applied to estimate the benefits of reducing water pollution on beaches located near an important metropolitan area of South America.     

Which hedonic models can we trust to recover the marginal willingness to pay for environmental amenities?

The hedonic property value model is among our foremost tools for evaluating the economic consequences of policies that target the supply of local public goods, environmental services, and urban amenities. We design a theoretically consistent and empirically realistic Monte Carlo study of whether omitted variables seriously undermine the method’s ability to accurately identify economic values. Our results suggest that large gains in accuracy can be realized by moving from the standard linear specifications for the price function to a more flexible framework that uses a combination of spatial fixed effects, quasi-experimental identification, and temporal controls for housing market adjustment.     

Site rent,air quality,and the demand for amenities

There has been considerable debate as to the information contained in the coefficients of a cross-sectional regression of site rent on air quality. Much of the confusion surrounding the analysis of the relationships (a) between air quality changes and property value changes, (b) between property value changes and benefits derived from quality changes, and (c) between the estimated cross-sectional coefficients and all of the above, can be cleared up by a discussion of the meaning of the hedonic equation. In that context, the implications for demand analysis are clarified.     

Using a choice experiment and birder preferences to guide bird‐conservation funding

Conservation of biodiversity, including birds, continues to challenge natural‐area managers. Stated‐preference methods (e.g., choice experiment [CE]) are increasingly used to provide data for valuation of natural ecosystems. We used a CE to calculate birders’ willingness to pay for different levels of bioecological attributes (threatened species, endemic species, and diversity) of birding sites with hypothetical entry fees. The CE was delivered at popular birding and avitourism sites in Australia and the United Kingdom. Latent‐class modeling results revealed heterogeneous preferences among birders and correspondingly variable willingness to pay. Four clear groups were apparent: quantity‐driven birders, special‐birds seekers, confused respondents, and price‐is‐no‐object birders. Quantity‐driven birders were attracted to sites that deliver high levels of diversity and endemic species for which they were willing to pay $135 and $66 to visit, respectively, above what they were willing to pay to visit a site with low levels of diversity and few endemic and threatened species . Special‐bird seekers valued threatened species and high levels of endemic species most (willingness to pay $45 and $46, respectively). Confused respondents’ preferences were difficult to determine, but they were the most sensitive to the hypothetical entry fees, unlike the price‐is‐no‐object birders, who were not at all sensitive to cost. Our findings demonstrate that birders are amenable to paying for their preferred birding experience. These payments could provide an alternative source of funding in some avitourism sites on both public and private land. Such alternative revenue streams should be explored and given full consideration in increasingly competitive conservation‐financing environments.     

On estimating air pollution control benefits from land value studies

This paper deals with some unresolved issues in interpreting empirical property value/air pollution studies. A model is developed in which it is shown that in general regressions of property values on pollution variables do not identify the demand curve for clean air. However since the first derivative of the observed rent function is a locus of household equilibrium marginal willingnesses to pay, aggregate benefits can be calculated directly. The possibilities for obtaining approximate measures of aggregate benefits for nonmarginal changes in air quality are also discussed.     

Willingness to Pay for Quality Improvements: Should Revealed and Stated Preference Data Be Combined?

In this article we propose theoretically consistent welfare measurement of use and nonuse values for an improvement in environmental quality with revealed and stated preference data. An analytical model based on the comparative static analysis of the variation function that describes the relationship between recreation demand and dichotomous choice contingent valuation models is estimated. Our results show that revealed and stated data should not be combined under the same assumed preference structure unless the two decisions imply the same change in behavior induced by the quality change. In addition, our results indicate scope effects in willingness to pay measures estimated with stated preference data.     

Air pollution as a cause of sleeplessness: Social media evidence from a panel of Chinese cities

We provide first evidence of a link from daily air pollution exposure to sleep loss in a panel of Chinese cities. We develop a social media-based, city-level metric for sleeplessness, and bolster causal claims by instrumenting for pollution with plausibly exogenous variations in wind patterns. Estimates of effect sizes are substantial and robust. In our preferred specification a one standard deviation increase in AQI causes an 11.6% increase in sleeplessness, and for PM_2.5 is 12.8%. The results sustain qualitatively under OLS estimation but are attenuated. The analysis provides a previously unaccounted for benefit of more stringent air quality regulation. It also offers a candidate mechanism in support of recent research that links daily air quality to diminished workplace productivity, cognitive performance, school absence, traffic accidents, and other detrimental outcomes.     

Benefits and ancillary costs of natural infrastructure: Evidence from the New Jersey coast

This paper empirically estimates the economic impacts of a large-scale public investment in natural infrastructure aimed at adapting to climate change and increasing coastal resilience. I utilize temporal and spatial variation in investment in dunes to provide a hedonic property value estimate of the economic benefits. I identify the net effect of treatment utilizing the doubly robust Oaxaca-Blinder estimator and show that coastal housing price increases attributable to constructed dunes are approximately 3.6%. A decomposition of the average impact suggests that the policy intervention generates ancillary costs related to impaired ocean views and privacy concerns that partially offset large protection benefits.