Smog Avoidance Investment While Improving Air Quality: Health Demand or Risk Aversion? Evidence from Cities in China

Atmospheric pollution control policies have achieved remarkable progress in China since 2013, and the smog protective equipment market has experienced a great boom during the same period. From the perspectives of the health production efficiency hypothesis and the time discount rate hypothesis, this study investigates the relationship between household expenditures on air pollution avoidance and health care, and individuals' self-assessed health based on network survey data from 17 cities in China. Using the treatment effect model to control the potential endogenous selection problems, we explain the paradox of the growing smog avoidance investment coexisting with improving air quality. First, smog avoidance investment and household medical expenditures do not have substitution effects, while the perception of pollution intensity, pollution protection knowledge, and future health preferences significantly promote smog avoidance investment and medical expenditures. Second, air pollution avoidance investment greatly increases the probability that urban residents rate their health as "good" and "very good". The results indicate that the time preference hypothesis can explain the pollution avoidance investment behavior and health demands of Chinese urban residents well. The hidden social welfare loss caused by air pollution may still be underestimated, even though short-term avoidance costs are included in the evaluation of pollution impacts. It is necessary to optimize environmental regulations and policies to consistently improve the ecological environment.