Pollution Self Protection Investment in China and Quality of Life Inequality

Cong Sun, Siqi Zheng and I have just published a good paper  that studies how households combine public goods (clean air) with private goods (air filters and masks) to produce "household goods" such as safety and comfort.  Our paper adds to Gary Becker's Household Production Function approach.  The figure below was cut from the paper because we did a bad job explaining it to the reviewers but in this blog I will try again to explain it.  In the back of my mind, I was thinking about Figure 1 in this old Peltzman JPE paper.

Chinese urbanites want to breathe clean air.   Both across Chinese cities and within Chinese cities, there is real estate pricing gradient such that nicer areas command a price premium.  In the figure below, a Chinese person's pizza consumption represents Income - rents.  So if rents are higher, then private consumption (pizza) is lower.  The non-linear line below is the household's hedonic budget constraint. Siqi Zheng and I present empirical evidence on China's urban real estate hedonic in this Beijing paper and this cross-city paper.  

In our new 2017 paper, we recognize that there are market goods such as air filters and masks that Chinese urbanites can buy to further increase their exposure to clean air.  In the figure below, we represent this as the linear line. So, a household provides clean air for itself through a two step process. It first chooses a neighborhood and then chooses how much to self protect.

In the paper, we discuss the fact that the rich live in better neighborhoods than the poor and then conditional on where they live, they invest more in self protection.  While masks are cheap, air filters are more expensive.  Such market goods that are mainly bought by the rich, means that gaps in pollution exposure between the rich and poor widen further because the rich have more adaptation options.

So, I'm happy to make an economic contribution to the study of pollution in China by merging some ideas of my teachers (Sherwin Rosen and Gary Becker).