Willingness to pay for staying away from haze: Evidence from a quasi-natural experiment in Xi'an.

Previous studies of the residents' willingness to pay (WTP) for air quality improvement are likely suffering various endogeneity biases. Exploiting the unique opportunity of a recent quasi-experiment operation of the world's first SFT (Smog Free Tower) in China's northwestern city Xi'an, this paper reliably calibrates local residents' WTP for less exposure to haze by analyzing the price responses of housings in the neighborhoods of SFT. The hedonic regression is applied in the DID (difference-in-difference) setting, with further assistances of the PSM (propensity score matching) method, quantile regression and placebo test. The regression results consistently suggest that housing price responded positively to the installment of the SFT, and the impact estimates are closely centered around 4%. The study also indicates high-priced housings response much more to the operation of the SFT than cheap-priced housings, suggesting uneven distribution of welfare gains of air quality improvement. A cost-benefit analysis of the SFT project indicates that the economic benefits of this project far outweigh the costs involved. The paper concludes with discussions of policy implications of this paper for environment governance. • Exploiting the unique opportunity of the world's first Smog Free Tower in Xi'an, this paper calibrates local residents' willing to pay to less exposure to haze. • The hedonic regression is applied in the DID setting, with further assistance of the PSM method, quantile regressions and placebo tests. • The regression results suggest that housing price responded positively to the installment of the SFT, and the impact estimates are around 4%. • High-priced housings response more to SFT than cheap-priced housings, suggesting uneven distribution of welfare gains of air quality improvement. • A cost-benefit analysis of the SFT indicates that the economic benefits of this project far outweigh the costs involved. [ABSTRACT FROM AUTHOR]