Environmental Economics and Sustainability

3 STRUCTURAL EQUATION MODELLING AND THE CAUSAL EFFECT OF PERMANENT INCOME ON LIFE SATISFACTION: THE CASE OF AIR POLLUTION VALUATION IN SWITZERLAND

Eleftherios Giovanis

Verona University

Oznur Ozdamar

Adnan Menderes University and Bologna University

1. Introduction

Air pollution has harmful effects on human health and ecosystems. Thus, it can also impact the Earth's climate. It is well known that pollutants released into the atmosphere not only cause local air pollution, but they also cause regional air pollution, such as acid rain and huge plumes of smoke covering large areas. The high levels of pollutants are more harmful in causing global environmental problems, as ozone depletion and climate change. Especially, O₃ and SO₂ contribute to global warming which is linked to climate change.

Air pollution also has significant negative impact on well-being, such as life satisfaction and health status. It is, therefore, crucial to have reliable estimates of the public willingness-to-pay for air pollution reduction. Overall, there are mainly three popular methods for the environmental valuation that are revealed preference, stated preference and the life satisfaction approach.

Revealed preference relies on hedonic price analysis, that is, uses variations in house price to elucidate the price attached to a cleaner environment. This approach has some limitations, such as it requires the market of interest (typically the housing market) to be in equilibrium at even small geographical ...