Evidence on the Value of Air Quality Improvements

December 30, 2011

The impact of air quality improvements on individuals' well-being has been the subject of inquiry by many scholars over the past several decades.  Hypotheses on the topic figure in discussions about the design and reform of air quality policies.  However, these theories often rely on varying estimates of the value of air quality improvement, and this leads to drastically differing conclusions.  In assessing 50 separate empirical studies of air quality benefits (which measure the value of air quality improvement in terms of willingness-to-pay or WTP) enormous variations can be explained, says Douglas S. Noonan of the American Enterprise Institute.

  • Almost all studies concluded that the WTPperQ, the amount a person would be willing to pay for a 1 percent improvement in air quality, is significantly positive.
  • However, WTPperQ variation among studies was enormous: while 90 percent of the observations fall between $0.002 and $381.42, many studies still provided significant results over $1,000, while others still found negative results.

Within this framework and using the data provided, which yielded 142 observations, analyses were run to see what factors could explain variations within the data.

  • WTP has a weak yet important correlation with income -- in developed countries, higher income is associated with higher WTP (each $1000 of more income increases WTPperQ by $4 on average).
  • Perplexingly, this same relationship is negative in developing countries, suggesting (without statistical significance), that the wealthier people in those nations are, the less likely they are to value air quality improvement highly.
  • As 75 percent of value estimates come from studies that acknowledged external financial support for the research, the effect of external funding is a key area to explore -- in this regard, it was found that more costly studies were more likely to report high estimates for WTP.

It remains crucial that lawmakers, in designing environmental policy, remain wary of estimated of the willingness-to-pay for air quality improvement.  High variability suggests that many reported values are unreliable or inaccurate.

Source: Douglas S. Noonan, "How Much Do We Care About the Air? Evidence on the Value of Air Quality Improvements," American Enterprise Institute, December 2011.

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