Air pollution, labor productivity, and individual consumption

This paper examines how air pollution affects consumption decisions through income and substitution channels by linking daily air pollution data with monthly records of individual consumption and labor productivity. Exploiting a quasi-experimental setting in a prison in Shenzhen City, China, we find that a 10-unit increase in the daily air pollution index reduces monthly consumption by 3.6%, with 78% of the effect explained by the income channel. The impact is heterogeneous across demographic groups and pollution levels. By jointly analyzing productivity and consumption responses, the paper contributes to a growing literature on the behavioral and economic consequences of environmental exposure.