Valuing Air Quality Using the Life Satisfaction Approach

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.