Air quality is remarkably poor in developing countries, and severe air pollution imposes a substantial health and economic burden on billions of people. However, a large economic burden of air pollution does not necessarily imply that existing environmental regulations are not optimal. Optimal environmental regulation depends on the extent to which individuals value air quality improvements—that is, their willingness to pay (WTP) for clean air.
In this paper, we develop a framework to estimate willingness to pay for clean air from defensive investments on differentiated products. Applying this framework to scanner data on air purifier sales in China, we find that a household is willing to pay $1.34 annually to remove 1 μg/m3 of PM10 and $32.7 annually to eliminate the pollution induced by the Huai River heating policy.
Substantial heterogeneity is explained by income and exposures to information on air pollution. Using these estimates, we evaluate various environmental policies and quantify the value of recent air quality improvements since China declared a war on pollution in 2014.
Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China
Journal of Political Economy, forthcoming. (with Shuang Zhang)