Estimating the impact of pollution on wages and housing prices using satellite imagery

Michael Benjamin Goodwin, Matías Fontenla and Fidel Gonzalez

Applied Economics Letters, 2021, vol. 28, issue 20, 1750-1753

Abstract: Air pollution is a global concern. However, research and policy addressing the problem remains hampered by a lack of ground-level air quality data. We estimate the value residents of Mexico City place on clean air using aerosol optical depth (AOD) from satellite imagery as a proxy for air pollution. We employ a unique dataset that combines actual household-level data with AOD and rainfall within a hedonic model focusing on people’s decisions regarding where to work and live in a developing nation. We address endogeneity and simultaneity concerns by using a 3SLS-IV estimation. Results suggest that residents place significant value on clean air, with a 10% increase in AOD leading to a 1.3% decrease in home prices and a 2.3% increase in wages.

Date: 2021
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DOI: 10.1080/13504851.2020.1853665

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