Three Essays on Air Pollution in Developing Countries by Jie-Sheng Tan-Soo University Program in Environmental Policy Duke University Date:_______________________ Approved: Subhrendu Pattanayak, Supervisor Alexander Pfaff Marc Jeuland Christopher Timmins Dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the University Program in Environmental Policy in the Graduate School of Duke University 2015 ABSTRACT Three Essays on Air Pollution in Developing Countries by Jie-Sheng Tan-Soo University Program in Environmental Policy Duke University Date:_______________________ Approved: Subhrendu Pattanayak, Supervisor Alexander Pfaff Marc Jeuland Christopher Timmins An abstract of a dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the University Program in Environmental Policy in the Graduate School of Duke University 2015 Copyright by Jie-Sheng Tan-Soo 2015 Abstract Air pollution is the largest contributor to mortality in developing countries and policymakers are pressed to take action to relieve its health burden. Using a variety of econometric strategies, I explore various issues surrounding policies to manage air pollution in developing countries. In the first chapter, using locational equilibrium logic and forest fires as instrument, I estimate the willingness-to-pay for improved PM 2.5 in Indonesia. I find that WTP is at around 1% of annual income. Moreover, this approach allows me to compute the welfare effects of a policy that reduces forest fires by 50% in some provinces. The second chapter continues on this theme by assessing the long-term impacts of early-life exposure to air pollution. Using the 1997 forest fires in Indonesia as an exogenous shock, I find that prenatal exposure to air pollution is associated with shorter height, decreased lung capacity, and lower results in cognitive tests. These findings are consistent across several specifications and robustness checks. The last chapter tackles the issue of indoor air pollution in India. I use stated responses from a discrete choice experiment to categorize households into three distinct groups of cookstoves preferences; interested in improved cookstoves, interested in electric cookstoves; uninterested. These groupings are then verified using actual stove purchase decisions and I find substantial agreement between households stated responses and their purchase decisions. iv Contents Abstract ......................................................................................................................................... iv List of Tables ................................................................................................................................. ix List of Figures ............................................................................................................................... xi 1. Valuing air quality policies in developing countries: The case of Indonesia ................... 1 1.1 Introduction ....................................................................................................................... 1 1.2 Literature Review ............................................................................................................. 5 1.3 Model and Estimation .................................................................................................... 11 1.4 Study location and data ................................................................................................. 17 1.4.1 Individual and household dataset .......................................................................... 18 1.4.2 Community data ........................................................................................................ 20 1.4.3 Environmental (air quality) data ............................................................................. 20 1.4.4 Descriptive Statistics ................................................................................................. 22 1.5 Modeling Issues .............................................................................................................. 25 1.5.1 Estimation of housing prices ................................................................................... 27 1.5.2 Wage imputation ....................................................................................................... 30 1.5.3 Endogeneity of air pollution .................................................................................... 35 1.6 Estimation Results .......................................................................................................... 42 1.6.1 Second stage results .................................................................................................. 46 1.6.2 Comparison of MWTP .............................................................................................. 48 1.7 Welfare Analysis ............................................................................................................. 49 v 1.7.1 Brief background of air quality management in Indonesia ................................. 52 1.7.2 Policy outcome scenario: Forest fires reduced by 50% ........................................ 53 1.8 Conclusions ..................................................................................................................... 57 2 Impacts of early-life exposure to forest fires on long-term outcomes of Indonesian children ......................................................................................................................................... 61 2.1 Introduction ..................................................................................................................... 61 2.2 Background ..................................................................................................................... 65 2.3 Framework ...................................................................................................................... 73 2.4 Data................................................................................................................................... 77 2.5 Results .............................................................................................................................. 87 2.5.1 Robustness Check 1: Household Inputs ................................................................. 96 2.5.2 Robustness Check 2: ‘Placebo’ test: older and younger children ....................... 97 2.6 Discussions and Conclusions ...................................................................................... 100 3. Preference heterogeneity and adoption of environmental health improvements: Evidence from a cookstove promotion experiment ............................................................. 103 3.1 Introduction ................................................................................................................... 103 3.2 Background and Motivation ....................................................................................... 107 3.3 Modeling ........................................................................................................................ 111 3.3.1 Modeling heterogeneous preferences for ICS ..................................................... 112 3.3.2 Modeling the adoption decision ............................................................................ 116 3.4 Research Site and Data ................................................................................................ 118 3.4.1 Sampling Frame ....................................................................................................... 119 3.4.2 Baseline surveys and the DCE ............................................................................... 120 vi 3.4.3 The intervention ...................................................................................................... 124 3.4.4 Sample balance and descriptive statistics ............................................................ 127 3.5 Results ............................................................................................................................ 135 3.5.1 Analysis of preferences: Mixed logit analyses .................................................... 135 3.5.2 Latent class analysis ................................................................................................ 137 3.5.3 Analyzing the ICS adoption decision ................................................................... 141 3.5.3.1 Question 1: Is preference class related to purchase of ICS during the sales intervention? ................................................................................................................. 142 3.5.3.2 Question 2: Are there differences in the responses to rebates across classes? ........................................................................................................................... 145 3.5.3.3 Question 3: Do specific preference types favor the electric stove relative to the biomass-burning ICS? ........................................................................................... 147 3.5.3.4 Question 4: Are specific preference types more likely to use the ICS? .... 150 3.6 Discussion ...................................................................................................................... 153 Appendix A...............................................................................................................................