China’s Rising Demand for “Green Cities”

Siqi Zheng, Jing Cao and I have written a new paper  about the demand for clean air in China’s major cities.   China’s cities are very polluted, but their pollution levels have been falling in recent years.  Common sense suggests that as their urbanites become richer that they will demand the same “blue skies” that we take for granted in the United States.  With the decline of the Chinese hukou system, cross-city migration is on the rise in China and people can “vote with their feet”.  Those cities that have low quality of life will lose their skilled and won’t attract other skilled workers to replace them.  Using standard statistical techniques, we document that home prices are higher in those cities with cleaner air and that this price premium is rising over time.  We show how to use cross-boundary pollution “spillovers” to provide plausibly exogenous variation in local air pollution to estimate how this disamenity affects real estate prices.  A naive approach that simply correlates local air pollution with local home prices might find a positive correlation as those cities that are booming will have higher home prices and higher pollution levels.

From reading the comments posted on my RBC blog posts, I see that economics is not everyone’s favorite field. I am married to an economist and I’m growing increasingly concerned that my 9 year old son may enter the family business.    I have been working on the broad topic of “Green Cities”.     for several years now.  In 2006, Brookings published my book;  Green Cities: Urban Growth and the Environment .   You can read Chapter One.  With Siqi Zheng, I am preparing to write a new version of this book solely focused on China’s cities.

I realize that the study I cite above focuses on cross-city variation.  In this 2008 paper , Siqi Zheng and I use unique project level data within Beijing to document similar patterns. Households value proximity to green space, clean air and proximity to subway stops.  Here is the paper’s abstract:

Beijing’s housing market has boomed over the last fifteen years. The city’s population grew by 40.6% and per capita income (in constant RMB) by 273.9% from 1991 to 2005. Using two geocoded data sets, we present new evidence on the real estate price gradient, land price gradient, population densities, and building densities in Beijing’s recent free housing market. The classic urban monocentric model’s predictions are largely upheld in Beijing. We also document the importance of local public goods, such as access to public transit infrastructure, core high schools, clean air, and major universities, most of which have exogenous locations, as important determinants of real estate prices.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

12 thoughts on “China’s Rising Demand for “Green Cities””

  1. I just don’t know what economics has to do with a reality-based community, any more than all the religious exegesis of the metaphysical mumbo jumbo does.

    I like economists just fine, just as I admire any other grifter with a good story and the ability to sell it.

  2. JMG, if your mind doesn’t stretch to understanding economics, or metaphysics, or any other discipline, that doesn’t demonstrate that those whose minds stretch father than yours are “grifters.”

  3. Matt, I hope you’ll remind some of your Chicago friends that there’s nothing about the disamenity of air pollution, or the tendency of consumers to avoid that disemenity, that will lead the market to produce clean air; the free-rider problem is unavoidable, except by coercion.

  4. That’s great that a few rich people can purchase and consume clean air and water! Terrific! The system works!

    And who cares about people who are unable to migrate or shield themselves from the waste generated by Homo sapiens anyways?

  5. Mark, please consdier Matthew’s record here.

    Second, as has been said above – by you – clean air is a free-rider problem. Also, from everything I’ve ever heard about China, it’ll be a very, very small minority which has the discretion to vote with their feet on anything except getting jobs. They won’t be in a position to pick and choose cities on the basis of pollution.

  6. Mr. K, quite right. My shortcomings have nothing to do with making economics being 90% con and 10% banal truisms.

  7. “Mark, please consdier Matthew’s record here.”

    And what is Matthew’s record? He is a persistent Pollyanna who believes that ever problem of the future, whether it’s global warming, peak oil, or city sizing, will be solved by market magic. The fact that this has explicitly not occurred in a huge number of situations, and that the reasons for its not occurring, are obvious, apparently means nothing to him — the solution is obviously to make the markets even freer.

    Mark’s mention of externalities is simply a very polite and restrained reminder of this fact. Mark might have thrown in a whole variety of other issues that are consistently ignored by Matthew — information asymmetries, bargaining asymmetries, co-ordination issues, games leading to sub-optimal outcomes (prisoner’s dilemma etc), and so on.

  8. China is likely the LAST country that will end up with Green Cities. The whole country is a fairly unique blend of corruption, greed and the free-rider problem. Despite ancient history, the nation as a whole–and the majority of residents–exhibits not one iota of care about the future, anyone’s future. Take a look at this week’s Economist articles on the Chinese in Africa. It points only to a small part of the problem. Chinese industries have been devastating natural resources in virtually every equatorial or tropical country where they’ve been allowed to operate. From clear-cutting Indonesian rain forests–including species that have been targeted for protection (it’s an easy matter of relabeling the lumber as it leaves the country as some other, less rare species)–to encouraging or participating in massive slaughter of protected animals, to open mining in sensitive ecological areas. You name the violation, Chinese have been guilty of it. And it’s not much better at home, except for the party and business elites who can afford to protect their own territories. At least, they have to breathe the same air as everyone else. Much has been made of China buying up green technologies. This is not done with the idea of improving global energy outlook, but with the idea of controlling it. To them, green energy is merely a growth industry with limited resources–control the resources and you can make a quick buck. Of course, the only people more gullible than those who believe in self-evolving China are those who believe in market-driven reforms.

  9. JMG says:

    “Mr. K, quite right. My shortcomings have nothing to do with making economics being 90% con and 10% banal truisms.”

    I would add to Mark a question – in which other mainstream academic field flourish, even after catastrophe?

    IIRC, Mark, you had a very witty point a long while back, pointing out that when selecting scientific flacks for a Republican candidate, the economic flack would be easiest to find, even from a top-ranked department.

  10. Correction: “…which other mainstream academic field have disproven beliefs flourished, even after they led to catastrophe?”

  11. Matt, I hope you’ll remind some of your Chicago friends that there’s nothing about the disamenity of air pollution, or the tendency of consumers to avoid that disemenity, that will lead the market to produce clean air; the free-rider problem is unavoidable, except by coercion.

    Mr Kleiman,

    Can you expand on that? I would have thought that any model in which landowners want their land to be as valuable as plausible would lead to an equilibrium of (and/or) less pollution because of overall value (if the landowners and the factory owners are the same) (and/or) active payments not to pollute. (We’ll pay you $5000 to not do X is scalable, assuming X can be done for less than cost+5000 in a less polluting way.)

  12. SamChevre: (not Mark, but have been reporting on this stuff for 20-plus years) The answer is that it’s generally more profitable for polluters to either move to places where people don’t have enough money to pay them not to pollute, or to ensure that the people surrounding their operate remain too poor to make such payments. And of course for most pollutants the collective-action difficulties of creating a market are well-nigh insurmountable, especially in terms of supervision and sanctions.

    There’s a whole lot of work on this from the 70s, 80s and early 90s, where various people show that, as usual, institutions are crucial. Outcomes depend on whom your framework assigns initial ownership of a resource to. If you have to pay factory owners not to pollute, pollution ends up at or near the level corresponding to the anti-pollution payment capacity of the poorest members of the public. If factory owners have to pay to be allowed to pollute, levels end up at the level corresponding to the payment desires of the most pollution-averse. Neither really works.

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