Measuring the Benefits of Clean Air: A Two-stage Hedonic Study Based on the Chicago Housing Market

The paper combines a new, large household-level data set with the two-stage hedonic estimation technique to derive new estimates of willingness-to-pay for reduced air pollution. The WTP estimates are found robust against functional-form specification. Marginal WTP estimates for a reduction in particulate pollution are found to be quite comparable with some previous estimates. Benefits of non-marginal changes exhibit consistently higher monetary returns in the case of particulate than in the case of sulfur dioxide, signifying that households dislike particulate pollution more than they do sulfur. The city-wide aggregate benefits of 5 percent pollution reduction in 1989-90 dollar range from 602 to 1078 million dollars in the case of particulate and from 368 to 480 million dollars in the case of sulfur dioxide. We thank Jan Brueckner for his valuable comments on the paper. Thanks are also due to the workshop participants at the University of Illinois and Binghamton University for their comments on an earlier version of the paper. Finally, we thank Robert Shaw at Housing and Urban Development Office, Washington, D. C., for providing the data on housing.