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Willingness to pay for clean air in China

Richard Freeman (), Wenquan Liang (), Ran Song and Christopher Timmins

Journal of Environmental Economics and Management, 2019, vol. 94, issue C, 188-216

Abstract: 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.

Keywords: Air pollution; Willingness to pay; Hedonics; Migration costs; Discrete choice models; Residential sorting (search for similar items in EconPapers)
JEL-codes: Q51 Q53 R23 (search for similar items in EconPapers)
Date: 2019
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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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