How does air pollution damage residents’ well-being? The evidence from China

Air pollution is a prevalent environmental problem facing the world, critically threatening the well-being of human beings. Using the China Genuine Progress indicator Survey dataset, we investigate the impact of air pollution on residents' well-being in China, and discuss the influencing mechanisms based on the theory of hierarchy of needs. As distinct winter heating policies cause different concentrations of air pollutants across the Qinling-Huaihe line in China, we construct a regression discontinuity design to identify the causal relationship. The results show that air pollution significantly damages residents' well-being. If annual average air quality index increases by 50 units, residents' happiness will fall by about 1.774 units. The mechanism analysis shows that air pollution reduces individual utility through increasing residents' daily expenditure to meet their low-level needs while reducing consumptions for higher-level needs, namely the so-called 'consumption downgrade'. Heterogeneity analysis shows that residents with higher education levels, middle-income level, longer commute time, and stronger public awareness are more affected by air pollution. In sum, policymakers should highlight the impact of the environment on people's subjective well-being and formulate appropriate intervention policies to alleviate adverse demographic changes that may harm the sustainable development.