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【Lecture on Economics and Business】Prof.Shanjun Li's Lecture Notice

Publish Date: 2017/06/19 15:10:51    Hits:

Title:Air Pollution, Consumer Spending and Willingness to Pay for Clean Air

Lecturer:Shanjun Li

Host:Prof.Ying Fan



Understanding the health impact of air pollution and consumer willingness to pay for clean air (WTP) is critical for understanding the benefit of environmental regulations. Based on the universe of credit and debit card transactions in China, this paper quantifies the health impacts of PM2.5 and estimates consumer WTP for improved air quality. To address the potential endogeneity in air pollution, we construct an IV by leveraging the spatial spillovers of air pollution due to long-range transport. Our analysis shows that PM2.5 has significant impacts on health spending in both short term (within a week) and longer term (within three months). A reduction of 10 mg/m3 in daily PM2.5 would lead to a total annual savings of at least 75 billion yuan ($11 billion) in health spending in China. The estimates suggest a lower bound of annual household WTP of $25 for a 10 mg/m3 reduction in PM2.5. While an increase in PM2.5 would lead to a modest reduction in spending on necessities (food and clothing) and in supermarkets in the short-term, likely due to avoidance behavior, there is no longer term impact on either type of transactions.