How environmental information is capitalized into the housing market? Evidence from China's National Ambient Air Quality Standards

Previous studies examined the effects of environmental information on people's pollution avoidance behaviors in the market. However, they obtained contradictory empirical findings and many of them failed to clearly examine and verify the potential mechanisms of how the disclosed information works in the housing market. To address these gaps, this study used a natural experiment design to identify the role of environmental information in housing prices. Exploiting a step-by-step air quality information disclosure program and a comprehensive dataset for housing markets, we found that information disclosure decreased housing prices by around 1.7%. This implies that people underestimated local air pollution in our sample cities before the program. By employing a representative survey of people's subjective perceptions of pollution, our mechanism analyses suggest that information updating serves as a channel through which information influences housing prices. These results are unchanged after conducting several robustness checks and excluding some other competing explanations.