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Worthy to Lose Some Money for Better Air Quality: Applications of Bayesian Networks on the Causal Effect of Income and Air Pollution on Life Satisfaction in Switzerland

Giovanis, Eleftherios (2018) Worthy to Lose Some Money for Better Air Quality: Applications of Bayesian Networks on the Causal Effect of Income and Air Pollution on Life Satisfaction in Switzerland. Empirical Economics. pp. 1-33. ISSN 0377-7332

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Abstract

One important determinant of well-being is the environmental quality. Many countries apply environmental regulations, reforms and policies for its improvement. However, the question is how the people value the environment, including the air quality. This study examines the association between air pollution and life satisfaction using the Swiss Household Panel survey over the years 2000–2013. We follow a Bayesian network (BN) strategy to estimate the causal effect of the income and air pollution on life satisfaction. We look at five main air pollutants: the ground-level ozone (O3), sulphur dioxide (SO2), nitrogen dioxide (NO2), carbon monoxide (CO) and particulate matter of 10 micrometres (PM10). Then, we calculate the individuals’ marginal willingness to pay (MWTP) of reducing air pollution that aims to improve their life satisfaction. Beside the BN model, we take advantage of the panel structure of our data and we follow two approaches as robustness check. This includes the adapted probit fixed effects and the generalised methods of moments system. Our findings show that O3 and PM10 present the highest MWTP values ranging between $8000 and $12,000, followed by the remained air pollutants with MWTP extending between $2000 and $6500. Applying the BNs, we find that the causal effect of income on life satisfaction is substantially increased. We also show the causal effects of air pollutants remain almost the same, leading to lower values of willingness to pay.

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