Daqian Shi, Hongwei Yu

Abstract: There are data integration and estimation endogeneity problems while estimate the subjective welfare loss of air pollution, which may result in incompatible findings. This paper attempts to integrate the air pollution data and subjective well-being data on individual-level, and use the number of environmental laws and regulations in prefecture-level cities as an instrumental variable for air pollution to evaluate the welfare loss of air pollution. The results show that there is a causal effect between air pollution and individual subjective well-being. 1mg/m³ increase of annual PM2.5 concentration in a city will result in a subjective welfare loss equivalent to 7.7% percent of household disposable income, which implies that previous studies may have underestimated the effect. Further mechanism analysis shows that the effect of PM2.5 on subjective well-being is more through physical health than through mental health.

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