Measuring the Value of Air Quality: Application of the Spatial-Hedonic Model

The value of air quality improvement following the 1990 Clean Air Act Amendments is estimated at the county level in the lower 48 United States. This study applies a hedonic model to assess the economic benefits of air quality improvement using an instrumental variable approach that combines geographically weighted and spatial autoregression methods to account for spatial heterogeneity and spatial autocorrelation. Positive amenity values of improved air quality are found in five major clusters of areas across Eastern Kentucky and most of Georgia around Southern Appalachian area, the State of Illinois, on the border of Oklahoma and Kansas, on the border of Kansas and Nebraska, and Eastern Texas. The reason for the clusters of significant positive amenity values may be due to the combination of intense air pollution, consumers’ awareness of diminishing air quality, and higher marginal benefit of reductions of TSPs in communities with relatively low pollution levels. Surprisingly, negative amenity values of improved air quality are found in the three distinctive clusters of east Virginia, west and central Texas, and southeast Montana. This unexpected result may be explained by worsening air quality with intensive economic growth, greater appreciation in housing prices in those regions, and/or missing variables reflecting regionally specialized economic growth.