Valuing Air Quality Using the Life Satisfaction Approach

“The LSA has, for example, been used to value air pollution (Luechinger, 2009; Welsch, 2006), airport noise nuisance (van Praag & Baarsma, 2005), terrorism (Frey et al., 2009), droughts (Nick et al., 2009), and flood hazards (Luechinger & Raschky, 2009).”

“Finally, we add to the steadily growing literature that calculates compensating variations using wellbeing data to 7 monetarily quantify non-market goods and activities (e.g. van Praag and Baarsma, 2005; Luechinger, 2009a, 2009b; Levinson, 2012; Dolan et al., 2019).”

“Multiple investigations used the LSA model to assess the economic value of diverse factors, including urban air pollution, air quality [35, 55], airport noise [47], climate [56], scenic amenities [10], and flooding [57].”

“Many studies have also shown that air pollution negatively affects 61 life satisfaction and can have detrimental impacts on commercial activities, such as tourism 62 (McNeill and Roberge 2000; Luechinger 2009; Menz and Welsch 2010; Ferreira et al. 2013; 63 BCVCC 2015a, 2015b).”

“Interestingly, some scholars provided evidence that endogenous perceived air pollution was negatively related to happiness in Germany [37].”

“While air pollution and effects thereof may not figure prominently in those studies, indirect evidence of air pollution’s role for power plant externalities can be found in Luechinger (2009).”

“In order to identify the implied trade-offs, we estimate a standard panel life satisfaction specification and we use the estimated coefficients to calculate the trade-off using the compensating surplus approach as extensively done in this literature (Welsch 2002; Luechinger 2007; Van Praag and Baarsma 2005; Luechinger…”

“…variables, the VOT for commuting time is calculated using the estimated coefficients of commuting time and income as follows (Frey et al., 2010; Luechinger, 2009; Luechinger and Raschky, 2009; Dickerson et al., 2014): U ¼ f T; Y; Xð Þ; (2) where U is individual utility in terms of life…”

“First, because they become habituated to air pollution and second at the first place they sort in polluted areas, because they care less about air quality (Luechinger 2009; Levinson 2012). The second important issue of LSA is that whenwe add income into the regressions, small estimated income coefficients are common.…”

“Omission of such factors may induce downward bias regarding the coefficient for income, and their omission might be one reason why the income coefficient is often found to be very low (Luechinger, 2009).”

“Furthermore, unlike previous investigations (Welsch, 2006; Smyth et al. , 2008; Re-hdanz and Maddison, 2008; Luechinger, 2009; MacKerron and Mourato, 2009; Levinson, 2012; Ferreira et al. , 2013) that relied on ambient air pollution data, which failed to provide insights into the specific…”

“For air pollution, see Rehdanz and Mad-dison (2008); Lüchinger (2009); MacKerron and Mourato (2009); Ferreira and Moro (2010); Levinson (2012); Menz and Welsch (2012); Ferreira et al. (2013); Ambrey and Fleming (2014); Zhang et al. (2017a, 2017b); Yuan, Shin, and Managi (2018).”

“First, the stated preference approach posits that residents can accurately pinpoint their willingness to pay for different levels of air quality [26].”

“Environmental factors such as air pollution (Luechinger, 2009; Welsch, 2006) and climate (Rehdanz and Maddison, 2005) have also been shown to impact negatively on wellbeing.”

“As examples, efforts to improve individuals’ financial condition 26 , environmental quality 27 and leisure engagement 9 are bottom-up approaches towards improving life satisfaction, whereas interventions focusing on cultivating gratitude, mindfulness, character strengths and purpose in life 28 (but…”

“…3 To address this issues, we instrument the income variable using a predictor of the household income, following the intuition by Luttmer (2005) and then followed by Luechinger (2009), Pischke (2011), Vendrik (2013) and Kaiser (2020); although our construction of the variable slightly differ…”

“Luechinger, S. and A. Stutzer (2007). Calculating tragedy: assessing the costs of terrorism.”

“In environmental economics it has been applied to value local environmental characteristics such as noise (van Praag and Baarsma, 2005), air pollution (Welsch, 2002, 2006; Luechinger, 2009; MacKerron and Mourato, 2009), climate (Brereton et al.”

“It regresses measures of well-being on a chosen focus variable (e.g. a public good), income and other variables to estimate the value of the focus variables through calculating utility constant trade-o ff ratios between the focus variables and income (Luechinger 2009, 483).”

“A solution for this issue is to use instrumental variables approach (Luechinger, 2009; Ferreira and Moro, 2010).”

“9 Recent studies that use life satisfaction as proxy for SWB are: Di Tella et al. (2001; 2003), van Praag and Baarsma (2005), Welsch (2007), Carroll et al. (2009), Frey et al. (2009), Luechinger (2009), and Ferreira and Moro (2010).”

“We add to the evidence showing that the costs of air pollution extend beyond narrow health effects (e.g., Currie et al. 2009; Luechinger 2009; Graff Zivin and Neidell 2012; Isen et al. 2017).”

“Hence, our empirical result supports this observation and findings of Oishi et al. (2011), Oishi and Kesebir (2015) and Wesselbaum (2019). The results also indicate a significant negative link between unemployment rates and HPI, suggesting that increases in unemployment lead to a decrease in the HPI, i.”

“On the other hand, in the literature review of happiness and life satisfaction economics, the instruments used include wage differentials and interactions between the partner’s industry, occupation, and location (Luttmer 2005; Luechinger 2009; Pischke 2011).”

“This includes, but is not limited to, the values of marriage (Blanchflower and Oswald, 2004), the extent of social relationships (Powdthavee, 2008), terrorism (Frey et al., 2009); air quality (Luechinger, 2009), airport noise (van Praag and Baarsma, 2005), and crime (Powdthavee, 2005).”

“A number of studies have used a well-being approach for valuing public goods (Frey et al. 2009; Luechinger, 2009).”

“For instance, Luechinger (2009) found in a quasi-experimental study that respondents’ life satisfaction improved when smokestack pollution in their area decreased.”

“…complement to objective well-being in economics, includes both cognitive and affective evaluations of life (Diener, 1984), and has since gained considerable attention in the economic literature (Frijters et al., 2020; Kahneman & Krueger, 2006; Levinson, 2012; Luechinger 2009; Oswald et al., 2015).”

“The corresponding IV coefficient, with a value of 0.63, was on the higher end of previous IV estimates based on the industry‐wage structure and the SOEP: Luechinger (2009) reported an estimate of 0.55, while Pischke (2011) reported values ranging from 0.489 to 0.617.”

“For example, Luechinger (2009) uses the IV approach, exploiting the natural experiment created by the mandated installation of scrubbers at power plants, with wind directions dividing counties into treatment and control groups.”

“The analysis relies on detailed micro-level data, using local authority districts, instead of using counties like other studies do (Luechinger 2009; 2010; Ferreira et al., 2013).”

“…are representative of all persons aged 15 and over resident within 3 At a more general level this paper fits alongside work on environmental economics such as Atkinson et al. 2012, Claborn and Brooks 2019, Levinson 2012, Luechinger 2009, and Maddison et al. 2019. private households in each country.”

“Utilizing this method, previous studies have investigated the monetary value of intangible goods such as air quality (Welsch 2006; Luechinger 2009), airport noise (Welsch 2006), extreme weather events (Möllendorff et al., 2016), green spaces (Tsurumi and Managi 2015), healthy behaviors (Shi et al.”

“Several papers examine the effects of annual average SO2 on life satisfaction (Luechinger 2009; Luechinger 2010; Ferreira et al. 2013).”

“The analysis relies on detailed micro-level data, using local authority districts, instead of using cities or counties like other studies do (Ferreira et al., 2006; Luechinger, 2009).”

“Lüchinger (2009) kommt in einer Untersuchung für Deutschland zu dem Ergebnis, dass sich die Schwefeldioxidbelastung durch Kraftwerke und Fabriken negativ auf die durchschnittliche Lebenszufriedenheit auswirkt und somit signifikante Wohlfahrtskosten hat.”

“Following the literature, we calculate the willingness to pay (WTP) for air quality, which is a trade-off between the household income and air quality that keeps the life satisfaction being constant (e.g. Levinson, 2012; Luechinger, 2009; Zhang et al., 2017b).”

“The economic valuation method is also explained by Luechinger (2009) and Santos et al. (2016) that the valuation approach can use several methods, including: (1) market price method; (2) productivity methods; (3) hedonic price method; (4) method of travel expenses; (5) methods of avoiding the cost…”

“According to the inversed distance weight interpolation method proposed by Luechinger (2009), the air quality of a residential neighborhood is obtained by weighting the average of the Euclidean distance between the latitude and longitude of the residential neighborhood and the latitude and…”

“…compensating surplus, as is standard in the literature measuring the value of non-market goods based on happiness data (see Welsch, 2002, and Luechinger, 2009, for air pollution; Frey et al., 2009, for terrorist activity; van Praag and Baarsma, 2005, for noise; and Luechinger and Raschky,…”

“Deteriorating air quality is extremely harmful to the population (Kim et al., 2003; Chay and Greenstone, 2005; Luechinger, 2009; Ito and Zhang, 2020; Gao et al., 2022), and it can especially cause immeasurable health effects on infants, young children and the elderly (Tanaka, 2015; Schlenker and…”

“People living in bigger cities are exposed to much traffic which comes with increased air pollution and noise, and which, in turn, causes health problems and negatively affects well-being (Bluhm, Nordling, and Berglind 2004; Welsch, 2006; Luechinger, 2009).”

“…well-being data have already been employed for non-market environmental valuation of, inter alia , noise (van Praag and Baarsma, 2005), air quality (Luechinger 2009), or natural disasters (Luechinger and Raschky 2009, Ahmadiani and Ferreira 2021), offering “ a promising new way of valuing…”

“Some examples are applications on air quality (Luechinger, 2009), travel time (Amador et al., 2005), crime reduction (Brenig & Proeger, 2018), mental distress from bereavement (Oswald & Powdthavee, 2008), or mental distress from other life events (Clark & Oswald, 2002).”

“Luechinger (2009) collected nearly two decades worth of sulfur dioxide concentration data and found a substantial effect on SWB caused by SO2 emissions.”

“1057/ s4128702100480-3 Luechinger S (2009) Valuing air quality using the life satisfaction approach.”

“WVM involves estimating the well-being equation (1), 2 e.g., airport noise (Van Praag and Baarsma 2005), air quality (Luechinger 2009), different phenomena related to crime and safety (Powdthavee 2005; Moore 2006; Frey et al. 2009; Cohen 2008; Kuroki 2013; Cheng and Smyth 2015), the value of…”

“…literature has used subjective well-being to place monetary value on public goods (or public bads) such as airport noise (Van Praag and Baarsma 2005 ), flood disasters (Luechinger and Raschky 2009 ), traffic congestion (Anderson et al. 2016 ), and air pollution (Luechinger 2009 ; Levinson 2012 ).”

“To alleviate the first and second concern, I instrument income following the approach first pursued by Luttmer (2005) and later adopted by Luechinger (2009) and Vendrik (2013).”

“Air pollution and life satisfaction Welsch (2006) LS (Well-being, Happiness) 10 European countries/ 1990-1997 - NO2, lead concentration - Generalized least squares(GLS) Rehdanz and Maddison (2008) LS (Well-being) Germany/ 1994, 1999 - Affected by level of air pollution - Hedonic regression Luechinger (2009) LS Germany…”

“Following the previous literature (Gerking and Stanley, 1986; Chay and Greenstone (2003a, 2003b; Luechinger, 2009), the individual and household variables of interest are household income2, the type of the household, employment status, house tenure, marital status, education level, the industry…”

“Generally, both OLS and Probit-OLS have been compared with the ordered models and no differences have been found among them (Ferrer-i-Carbonell and Frijters 2004; Van Praag and Ferrer-i-Carbonell 2006; Van Praag 2007; Luechinger 2009, 2010; Stevenson and Wolfers 2008; Wunder and Schwarze 2010).”

“The methodology we follow is common to other empirical papers in happiness studies such as those valuing air pollution (Welsch, 2002 and Luechinger, 2007), terrorist activity (Frey et al., 2009), noise nuisance (van Praag and Baarsma, 2005) and flood disasters (Luechinger and Raschky, 2009).”

““Better the devil you know”: Are stated preferences over health and happiness determined by how healthy and happy people are? Social Science & Medicine 303, 115015. Adler, M. D., P. Dolan, and G. Kavetsos (2017). Would you choose to be happy? Tradeo↵s between happiness and the other dimensions of life in a large popul…”

“, 2019) and well-being (Luechinger, 2009), and increases anxiety (Trushna et al.”

“I have also received invaluable advice from some of the major scholars in this area -- including Arik Levinson, Simon Luechinger, Mirko Moro, and Heinz Welsch.”

“…the relationships between life satisfaction and the main variables and applied regression models suited for ordinal dependent variables when estimating the monetary value of the respective public good (e.g. Luechinger 2009; Frey et al. 2009; Luechinger 2010; Luechinger and Raschky 2009).”