Koichiro Ito, University of Chicago and NBER, and Shuang Zhang, University of Colorado

Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China

This paper provides among the first revealed preference estimate of willingness to pay (WTP) for clean air in developing countries. Ito and Zhang's first approach exploits panel variation in air pollution in Chinese cities along with product-by-store level transaction data in air purifier markets. The researchers first estimate the nationwide average of marginal willingness-to-pay (MWTP) for removing 1 ug/m3 PM10 for a year, and WTP for removing the average level of PM10 (100 ug/m3 of PM10). Their second approach leverages the Huai River heating policy, which created discontinuous quasi-experimental variation in air pollution between the north and south of the river. Using a spatial regression discontinuity design, the researchers estimate the local average of MWTP for removing 1 ug/m3 PM10 that is generated by the Huai River policy. Combining their estimates on MWTP for clean air with estimates on the pollution-health relationship, the authors find that the lower bound of health valuation in China is substantially higher than previously understood for developing countries. Their findings provide important policy implications for optimal environmental regulation.