The Morbidity Costs of Air Pollution through the Lens of Health Spending in China

This study offers one of the first causal evidence on the morbidity costs of fine particulates (PM2.5) for all age cohorts in a developing country, using individual-level healthcare spending data from the basic medical insurance program in Wuhan, China. Our instrumental variable (IV) approach uses thermal inversion to address potential endogeneity in PM2.5 concentrations and shows that PM2.5 imposes a significant impact on medical expenditures. The IV estimate suggests that a 10 μg/m 3 reduction in monthly average PM2.5 leads to a 2.79% decrease in the value of health spending and a 0.70% decline in the number of transactions in pharmacies and health facilities. The effect is more salient for males, children, and older adults. Moreover, our estimates provide a lower bound of people’s willingness-to-pay, which amounts to CNY 51.85 (or USD 8.38) per capita per year for a 10 μg/m 3 reduction in PM2.5. JEL Codes Q51, Q53, I11, I31 Conflict of interest The authors declare that they have no conflict of interest.