External Working Paper

The True Cost of Air Pollution: Evidence from the Housing Market

Mar 7, 2017 | Daniel M. Sullivan

Abstract

This paper presents evidence that current research significantly underestimates the effects of air pollution because conventional methods cannot account for sharp changes in pollution over short distances or the wind-driven dispersion of pollutants. I use a state-of-the-art atmospheric dispersion model, which solves these problems, with a natural experiment to estimate the causal effect of NOx exposure on house prices in metropolitan Los Angeles. The wind-based estimate is over 10 times larger than conventional estimates and implies the value of RECLAIM, the local cap-and-trade program underlying the natural experiment, is roughly $502 million per year.