EXPRESS: The Impact of Air Pollution on Consumer Spending

Abstract

Air pollution is a growing concern to economies and societies worldwide. Despite common knowledge that air pollution impairs our emotions and cognition and hence behavioral outcomes, the impact of air pollution on consumer spending remains an open question. Analyzing air quality readings and individual-level credit card transactions in South Korea, this paper shows that consumers spend more money when air quality is poorer. This correlation is more prominent in hedonic categories, such as entertainment or leisure activities, where the nature of consumption is characterized by greater emotional benefits. The authors consider potential explanations, and the leading hypothesis is that consumers treat spending as a mood-regulating resource. The results survive an array of robustness checks and are supported in a controlled experiment, reinforcing a causal inference behind the main findings. The authors provide implications for stakeholders to develop a sustainable marketing program that not only pursues managerial interests but also concerns consumer welfare in the face of environmental change.