The demand for air quality: evidence from the housing market in Bogotá, Colombia

• Published in: Environment and development economics 2018-04, Vol.23 (2), p.121-138
• Main Authors: Carriazo, Fernando, Gomez-Mahecha, John Alexander
• Format: Article
• Language: English
• Subjects: Air pollution; Air quality; Air quality standards; Airborne particulates; Carbon monoxide; Compliance; Condominiums; Cost benefit analysis; Demand; Emission measurements; Emission standards; Environmental economics; Environmental policy; Environmental protection; Environmental quality; Equilibrium; Health care policy; Housing; Housing market; Housing prices; Identification; Industrial areas; Neighborhoods; Nitrogen dioxide; Outdoor air quality; Particulate matter; Pollution control; Property values; Public health; Quality standards; Real estate; RESEARCH ARTICLE; Studies; Sulfur; Sulfur dioxide; Urban areas; Welfare policy
• ISSN: 1355-770X; 1469-4395
• DOI: 10.1017/S1355770X18000050

Identifying a demand function for air quality is a key input to calculate welfare measurements of pollution abatement policies. We defined intra-urban housing submarkets to apply a Second Stage hedonic pricing model that allowed us to identify an inverse demand function for PM10 reductions in Bogotá. The monthly benefits of compliance with the U.S. Environmental Protection Agency standard (50 μg/m3 – annual average), and the far more stringent World Health Organization standard (20 μg/m3 – annual average) are valued at US$12.16 and US$189.64 per household, respectively. These values, in turn, represent about 1.35 per cent and 21.04 per cent of the average household income. The hedonic model applied hereby shows that intra-urban housing submarkets are suitable for the identification of a demand function to be used by policy makers interested in evaluating non-marginal benefits (costs) from air quality improvements (deterioration).