The Price of Indoor Air Pollution: Evidence from Radon Maps and the Housing Market

Abstract

This paper uses the housing market to examine the costs of indoor air pollution. We focus on radon, a common indoor air pollutant which is the leading cause of lung cancer after smoking. For identification, we exploit a natural experiment whereby a risk map update in England induces exogenous variation in published pollution risk levels. We find a significant negative relationship between changes in published pollution risk levels and residential property prices. Interestingly, we do not find a symmetric effect for decreasing risk. We also show that the update of the risk map led higher socio-economic groups (SEGs) to move away from affected areas, attracting lower SEG residents via lower prices. Finally, we develop a new theoretical framework to account for preference based sorting, which allows us to calculate that the average willingness to pay to avoid the risk of indoor air pollution is 1.6% of a property price.