Environment and happiness: Valuation of air pollution using life satisfaction data

This paper explores the relationship between pollution and reported subjective well-being (happiness) in ten European countries. Using a set of panel data from happiness surveys, jointly with data on income and air pollution, it examines how self-reported well-being varies with prosperity and environmental conditions and calculates the implied valuation of changes in air pollution. The paper finds that air pollution plays a statistically significant role as a predictor of inter-country and inter-temporal differences in subjective well-being. The effect of air pollution on well-being translates into a considerable monetary value of improved air quality. The improvements achieved in Western Europe in the 1990s are valued at about $750 per capita per year in the case of nitrogen dioxide and about $1400 per capita per year in the case of lead. Due to synergies among the pollutants, the value of simultaneously reducing nitrogen dioxide and lead is slightly higher than the sum of these values.