Environmental amenities play an important role in residential location decisions, which in turn affect the concentration of consumption and production activities. In this paper, I develop and estimate a spatial general equilibrium model to examine how environmental amenities affect the spatial distribution of urban economic activities and their welfare consequences. The model characterizes household location and consumption decisions, production decisions, as well as urban agglomeration and dispersion forces. The empirical analysis leverages a natural experiment of pollution monitoring and information disclosure program and recovers key underlying parameters using fine-scale travel data on commuting and consumption trips and environmental amenities. The analysis shows that job access, residential amenities, and consumption access account for 49%, 30% and 21% of overall attractiveness of a residential location, respectively. A one-standard-deviation change in air quality leads to a 0.24-standard-deviation change in individuals’ perceived amenity level. Counterfactual simulations suggest an 8.4% welfare gain if individuals were to fully incorporate environmental amenities into their decisions, compared to the scenario of not incorporating their impacts. The welfare difference is driven by changes in residential and workplace locations, as well as consumption and production decisions.
Using the universe of credit- and debit-card transactions in China during 2013-2015, this paper provides the first nationwide analysis of the healthcare cost of PM2.5. We leverage spatial spillovers of PM2.5 from long-range transport for exogenous variation in local pollution and employ a flexible distributed lag model to capture semiparametrically the dynamic response of pollution exposure. Our analysis shows significant impacts of PM2.5 on healthcare spending in both the short and medium terms. A 10 µg/m3 decrease in PM2.5 would reduce annual healthcare spending by more than $9.2 billion, about 1.5% of China’s annual healthcare expenditure.
The social costs of pollution and climate change hinge critically on humans’ ability to adapt. Based on transaction records from the world’s largest payment network, this research compiles daily travel flows and documents that China’s rapid expansion of high-speed railways (HSR) facilitates the use of intercity travel as an effective adaptation strategy. Access to HSR reduces travelers’ exposure to extreme air pollution and temperature by 7% and 10%, leading to substantial health benefits. These reductions are attributed to both contemporaneous responses to unexpected adverse conditions and also longer-horizon changes in travel patterns.