Friday, October 13, 2006

Hong Kong, Air Pollution and the Coase Theorem

Hong Kong has a population of roughly 7 million people. Suppose this population has 125,000 live births each year. (This is how many live births there were in New York City in 2002 (see
Kenneth Chay and Michael Greenstone's QJE paper concluded that a 10 microgram per cubic meter reduction in particulates reduces infant mortality by 55 infant deaths per 100,000 live births at the county level. They used the U.S 1981 Rust Belt recession to generate this result.

So, if China's manufacturing is raising Hong Kong's particulate levels by 60 micrograms per cubic meter per year, then 6*55*1.25 = 412 infants in Hong Kong are dying each year because of China's cross-boundary pollution exports to Hong Kong.

If a statistical life in Hong Kong is worth $6 million dollars (see Kip Viscusi's work), then ignoring all other consequences of this pollution, then Hong Kong is losing $2.4 billion a year from the Mainland's smoke.

The Coase theorem would say that if property rights are well defined (they seem to be in this case!). the victim can negotiate with the polluter and reach the efficient outcome. Why isn't Hong Kong collecting some tax revenue and offering a payment or purchasing some clean technologies for the polluters? One answer might be a tragedy of the commons problem --- if Hong Kong paysoff one polluter, will other mainland polluters locate nearby the first polluter and wait for their payoff?

Here is the New York Times editorial --- what I find interesting is that an Environmental Kuznets curve analysis would be surprised by how far Hong Kong is from the regression line. High income, high pollution would be far from the quadratic regression line!

October 13, 2006
Something in Hong Kong’s Air

Anyone who has ever fallen under Hong Kong’s exotic spell in recent years knows how taking a deep breath can make the magic disappear. The air throughout Hong Kong’s tropical landscape has grown steadily more polluted — tainted by dark, unhealthy clouds from power plants, traffic and underregulated smokestacks from the Chinese mainland.

Hong Kong’s average air pollution levels can be so high — double or even triple the World Health Organization limit — that some analysts estimate the air contributes to an extra 2,000 deaths a year. Leaders in Beijing and Hong Kong have repeatedly promised to cut down on environmental toxins in the air, land and water.

But with China’s booming economy, such promises keep sliding down the real priority lists. What might change that attitude is how the outside business world views the quality of life for employees. As one businessman explained to The Wall Street Journal about his family’s recent retreat to Australia: “You can drink bottled water. But with the air — you have to breathe it.”

Such departures have finally begun to raise concerns in Hong Kong’s business community. The local Chamber of Commerce issued an urgent request for the government to commit to “genuine reductions in air pollution” after it found that “an alarming 95 percent” of executives interviewed were worried or very worried about air quality and its effects on their health. But in a disheartening development this week, Hong Kong’s chief executive, Donald Tsang, missed yet another opportunity to lay out a workable plan for clearing the air quickly.

This is not a hopeless situation, as leaders in Mexico City could attest. Once a place where residents courted asthma with every step outside, Mexico City approved what is generally regarded as one of the best and most comprehensive approaches to air pollution in 1990. The measures included everything from new fuel composition standards to new emission standards for vehicles. As a result, Mexico City halved some forms of air pollution in only five years. If Hong Kong even committed to cutting its pollution in half, that would be a good start.