Willingness to pay for clean air in China

Abstract

We develop 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 improvement 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 novel 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. JEL Classification: Q51, Q53, R23We would like to thank Wayne Gray, Don Fullerton, Ming Lu, Billy Pizer, Kerry Smith, Robert Stavins, Junfu Zhang, and seminar and conference participants at Harvard University, Fudan University, the 3rd Biennial Conference of China Development Studies, the 2017 Camp Resources for their helpful comments and insights. We thank He Tian and Yingdong Zhou for excellent research assistance. All remaining errors and omissions are our own.

Increase in domestic electricity consumption from particulate air pollution

“…First, our analysis addresses the situation in the city of Phoenix, Arizona. In spite of its top rank for air pollution levels in US cities, the concentration of PM is still far less than that in many developing countries such as Mexico or China 34,35 . Meanwhile, response levels can also differ due to cultural differences.…”

Effects of the COVID-19 on Air Quality: Human Mobility, Spillover Effects, and City Connections

“…We also complement policy evaluation of the unintended consequences of different policies for air quality (Barron and Torero 2017 ; Fu and Gu 2017 ; Lalive et al 2018 ; Zhang et al 2017 ). Second, by evaluating the determinants of air quality in China, this study complements the emerging literature on its causes and consequences (Chen et al 2018 ; Freeman et al 2019 ; Heyes and Zhu 2019 ; Wang et al 2018 ), thereby offering timely implications for policymakers. In addition, we present strong evidence that human mobility, economic activities, economic connection, willingness to self-isolate, public panic, and GDP growth incentives are important driving forces of air pollution.…”

“…We focus on China for two reasons. First, China suffers from severe air pollution (Chen et al 2018 ; Freeman et al 2019 ; Heyes and Zhu 2019 ; Shi and Xu 2018 ; Wang et al 2018 ). Second, China offers a good setting for assessing the economic impact of COVID-19.…”

Optimal Environmental Tax Rate in an Open Economy with Labor Migration—An E-DSGE Model Approach

“…They decompose the measure of migration into the net outmigration ratio and destination-based immigration ratio, and use the changes in the average strength of thermal inversions to pin down the causal relationship. To measure the monetary value of clean air in China, Freeman et al [36] construct a residential sorting model with consideration of migration disutility. Their structural estimation shows that a unit reduction in the PM2.5 concentration was worth approximately $8.83 billion in 2005.…”

“…Their structural estimation shows that a unit reduction in the PM2.5 concentration was worth approximately $8.83 billion in 2005. While the data employed in both Chen et al [10] and Freeman et al [36] are not at the individual level, Kim and Xie [7] study a similar topic using individual-level 2015 China Census data. They show that as the number of air pollution days increases by 1, the chance of an individual moving to another province increases by 0.65% on average (In Kim and Xie [7], the day is regarded as air polluted if the air pollution index (API) is greater than 150.…”