Koichiro Ito, Shuang Zhang; Journal of Political Economy

Key Takeaways:

  1. Air pollution leads to about 6.5 million deaths each year and serves as a major impediment to economic progress. Emerging economies experience the highest levels and worst impacts of this pollution. With a clear link between air pollution, health problems and economic costs established, governments are now proposing and implementing ways to combat air pollution.
  2. Optimal environmental regulations depend on the extent to which individuals value air quality improvements—that is, their willingness to pay for clean air. This study provides some of the first evidence for citizens’ willingness to pay for cleaner air in emerging economies.
  3. The researchers used monthly air purifier sales, monthly average prices paid and detailed product attributes such as effectiveness in reducing pollution, combined with pollution and demographic data. They also took advantage of a natural experiment rooted in the Huai River policy, which subsidized coal-based central heating for people living north of the river.
  4. The study found that pollution is 30 percent higher in cities north of the Huai River compared to cities in the south, and the market share for air purifiers with the strongest filters (HEPA)—which reduce almost all of indoor air pollution—is substantially higher in the north. This reveals that the higher the pollution the more likely people are to buy air purifiers that mitigate indoor air pollution.
  5. From the data analysis, the researchers conclude that on average people are willing to pay $5.46 to remove one microgram per cubic meter (ug/m3) of pollution out of the air. But, how much people are willing to pay varies widely depending on their income, with a range of zero to $15.
  6. People’s willingness to pay is a key barometer for policymakers trying to determine which rules and regulations are most effective in enhancing welfare. It further sheds light on the degree to which citizens prioritize economic growth over environmental regulations—a subject of constant debate and importance in both emerging and industrialized economies.