Does air quality matter?
Subtitle: evidence from the housing market
By: [by] Kenneth Y. Chay [and] Michael Greenstone
Contributors: Greenstone, Michael, 1968-; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 04-19; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 04-19.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Number of pages: 42
Description: We exploit the structure of the Clean Air Act to provide new evidence on the capitalization of total suspended particulates (TSPs) air pollution into housing values. This legislation imposes strict regulations on polluters in "nonattainment" counties, which are defined by TSPs concentrations that exceed a federally set ceiling. TSPs nonattainment status is associated with large reductions in TSPs pollution and increases in county-level housing prices. When nonattainment status is used as an instrumental variable for TSPs, we find that the elasticity of housing values with respect to particulates concentrations range from -0.20 to -0.35. These estimates of the average marginal willingness-to-pay for clean air are far less sensitive to model specification than cross-sectional and fixed effects estimates, which occasionally have the "perverse" sign. We also find modest evidence that the marginal benefit of pollution reductions is lower in communities with relatively high pollution levels, which is consistent with preference-based sorting. Overall, the improvements in air quality induced by the mid-1970s TSPs nonattainment designation are associated with a $45 billion aggregate increase in housing values in nonattainment counties between 1970 and 1980. Keywords: Benefits of clean air act; valuation of air quality, hedonic methods. JEL Classifications: H4, Q51, Q53, Q58.
Notes: "February 2004."

Includes bibliographical references (p. 39-42).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.