China's Rising Demand for "Green Cities": Evidence from Cross-City Real Estate Price Hedonics

Siqi Zheng, Jing Cao and Matthew Kahn

No 16992, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: With the decline of the traditional hukou system, migrants in China have a broad set of cities to choose from. Within an open system of cities, compensating differentials theory predicts that local real estate prices will reflect the marginal valuation of non-market local public goods. More polluted cities will feature lower real estate prices. But, local pollution may be caused by booming local industries. To address such endogeneity concerns, we estimate hedonic regressions using an instrumental variable strategy based on "imports" of pollution from nearby sources. By documenting the importance of spatial emissions patterns, our study highlights how real estate prices in one city are affected by Pigouvian externalities originating in another location. On average, a 10% decrease in imported neighbor pollution is associated with a 1.8% increase in local home prices.

JEL-codes: Q53 R31 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-dev, nep-ene, nep-env, nep-geo, nep-res, nep-tra and nep-ure
Note: EEE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Real Estate Valuation and Cross-Boundary Air Pollution Externalities: Evidence from Chinese Cities (joint with Cao, Zheng and Sun), Journal of Real Estate Finance and Economics, April 2013

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