Working Paper: NBER ID: w24157
Authors: Richard Freeman; Wenquan Liang; Ran Song; Christopher Timmins
Abstract: We develop 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 improvement 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 novel 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: clean air; willingness to pay; China; residential sorting model; migration disutility
JEL Codes: Q51; Q53; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| conventional hedonic models (D11) | biased estimates of willingness to pay (D11) |
| migration costs and choice set discreteness (R23) | negative estimates of willingness to pay (D11) |
| PM2.5 concentration decline (Q53) | economic value of air quality improvement (Q51) |
| migration disutility (J60) | willingness to pay for air quality improvement (Q51) |
| air quality (Q53) | household utility (D11) |