We develop a framework to estimate willingness to pay for clean air from defensive investments on differentiated products. Applying this framework to scanner data on air purifier sales in China, we find that a household is willing to pay $1.34 annually to remove 1 µg/m3 of PM10 and $32.7 annually to eliminate the pollution induced by the Huai River heating policy. Substantial heterogeneity is explained by income and exposures to information on air pollution. Using these estimates, we evaluate various environmental policies and quantify the value of recent air quality improvements since China declared a war on pollution in 2014.
Link to paper: spot.colorado.edu/~shzh6533/Ito_Zhang_V24.pdf