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Valuing Air Quality Using the Life Satisfaction Approach

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  • Simon Luechinger

Abstract

I use the life satisfaction approach to value air quality, combining individual‐level panel and high‐resolution SO2 data. To avoid simultaneity problems, I construct a novel instrument exploiting the natural experiment created by the mandated scrubber installation at power plants, with wind directions dividing counties into treatment and control groups. I find a negative effect of pollution on well‐being that is larger for instrumental variable than conventional estimates, robust to controls for local unemployment, particulate pollution, reunification effects and rural/urban trends, and larger for environmentalists and predicted risk groups. To calculate total willingness‐to‐pay, the estimates are supplemented by hedonic housing regressions.

Suggested Citation

  • Simon Luechinger, 2009. "Valuing Air Quality Using the Life Satisfaction Approach," Economic Journal, Royal Economic Society, vol. 119(536), pages 482-515, March.
  • Handle: RePEc:wly:econjl:v:119:y:2009:i:536:p:482-515
    DOI: 10.1111/j.1468-0297.2008.02241.x
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