This project develops and implements a new method for putting a monetary value on changes in environmental quality. It uses the General Social Survey (GSS) which has asked 38,000 people in various U.S. cities over 30 years whether they are "very happy, pretty happy, or not too happy," along with other demographic and attitude questions. These GSS data can be matched with the Environmental Protection Agency's Air Quality System (AQS) to find the level of pollution in those cities on the dates the survey questions were asked. People with higher income in any given year and city report higher levels of happiness. And, importantly for this project, people interviewed on days when air pollution was worse than the local annual average report lower levels of happiness. Combining these two concepts, it is possible using the GSS and AQS to estimate how much income is necessary to compensate people for any particular decline in air quality.
This project combines two broad literatures: recent developments in economics and psychology studying happiness; and applied economics research valuing environmental quality. Happiness has been drawing increasing interest from economists, both for its theoretical foundations and practical applications. Theorists have focused on the implications of happiness being relative, rather than absolute, and whether it is transitory or permanent ("experience utility" versus "decision" utility). In practice economists have recently begun using happiness data to assess the social costs of issues such as unemployment, inflation, inequality, the Berlin Wall, and airport noise. This proposed research will extend this new tool to evaluate the social costs of air pollution.
Broader Impacts: This project develops an entirely new methodology for estimating the social cost of air pollution (or, put differently, the benefits of public policies that reduce air pollution). The US Environmental Protection Agency uses a number of standard tools for measuring these costs. These include hedonic regressions (houses cost more in clean areas, all else equal); travel-cost models (people incur greater costs to get to more pristine recreation sites); and contingent valuation approaches (simply asking people whether they would be willing to pay for a specific improvement in environmental quality). Each of these has its drawbacks. The happiness approach proposed here has its own shortcomings, detailed in the project description that follows. It is, however, an important complement to and validation test of the standard approaches.
