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

Yu Qin (), Jing Wu and Jubo Yan

Journal of Environmental Economics and Management, 2019, vol. 94, issue C, 161-187

Abstract: 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.

Keywords: Air pollution; Housing market; Salience; Relative thinking (search for similar items in EconPapers)
JEL-codes: D91 Q51 Q53 R31 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jeem.2019.02.002

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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