Working Paper: NBER ID: w16992
Authors: Siqi Zheng; Jing Cao; Matthew E. Kahn
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.
Keywords: Air Pollution; Real Estate Prices; Hedonic Pricing; China; Urban Economics
JEL Codes: Q53; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| time (C41) | PM10 elasticity (H30) |
| imported neighbor pollution (F64) | local home prices (R31) |
| local pollution levels (Q53) | local home prices (R31) |
| local industrial activity (L69) | local pollution levels (Q53) |