Air Pollution, Health Impact and Willingness to Pay for Clean Air in China

Abstract

Understanding the health impact of air pollution is critical for understanding the benefit of environmental regulations. While there is a rich literature from epidemiology and economics that quantify the mortality risk of air pollution, the morbidity impact of air pollution especially in developing countries is not well understood. This paper examines both the short- and long-term impacts of PM2.5 on morbidity based on daily card spending in hospitals and drugstores in nearly 300 cities. To address the potential endogeneity in air pollution, we construct an IV by leveraging the spatial spillovers of air pollution due to long-range transport. Our analysis shows that PM2.5 has significant impacts on health spending in both short term (within a week) and longer term (within three months). A reduction of 10 ug/m3 in daily PM2.5 could lead to a total annual savings of at least 75 billion yuan($11 billion) in health spending in China.