Association for Public Policy Analysis & Management

For the past three decades, South Korean government has implemented a number of policies to reduce particulate matter air pollution. Although the ambient air PM10 concentration in Korea declined greatly throughout the 1990s well into 2012, it is still more than twice as high as the World Health Organization’s standard and the highest among the OECD countries. In addition, PM10 concentration in Korea shows an upward trend since 2012 due to increased domestic economic activities and pollution spillover from China as well as weather conditions unfavorable to the dissipation of the air pollutant. Recently, Korean policy makers are looking to take more comprehensive measures to address the PM10 pollution, and this paper will contribute to their cost-benefit analysis of evaluating different policy options by providing information on Korean households’ valuations of air quality. This paper is among the few studies valuing air quality in Korea and improves upon previous studies in data quality and estimation method. Rather than relying on the survey data on housing prices and characteristics, this study uses the Ministry of Land, Infrastructure, and Transport’s records of actual transactions of all apartments sold during 2006-2014 in Korea. A natural phenomenon called Asian dust is exploited as a source of exogenous variation in PM10 concentration. Asian dust, originating from Inner Mongolia and Northern China and carried by westerly winds to Korea mostly during the spring, hits various locations in Korea with various frequencies and strengths depending on the wind patterns and speeds. The locations affected by the dust storm experience elevated PM10 concentrations. The main econometric specification uses the annual total number of days with Asian dust events as an instrumental variable for the annual average PM10 concentration at the county level and includes apartment complex fixed effects. The results of the IV estimation with apartment complex fixed effects provide no evidence that Korean households’ benefit from PM10 reduction exceeds the cost of the reduction.