How Much are Urban Residents in Mexico Willing to Pay for Cleaner Air?

We estimate the marginal willingness-to-pay for PM10 abatement in the three largest Mexican cities. We use a unique data set with actual market transactions at the household level from January 2003 to May 2004 and observed PM10 concentrations. We follow an instrumental variable approach to mitigate bias from omitted variables. We exploit the seasonality in PM10 concentrations due to rainfall patterns in those cities to construct a valid instrument for PM10. We find the house price-pollution elasticity to be around -0.07 for Mexico City, -0.05 for Guadalajara, and -0.07 for Monterrey, implying that one unit reduction in PM10 levels is valued at US $41.73, 36.34 and 43.47, respectively. Our results indicate that urban residents of Mexico are willing to pay for cleaner air