Do people habituate to air pollution? Evidence from international life satisfaction data

Air pollution constitutes one of the main environmental problems in many countries. This paper uses the life satisfaction approach to environmental valuation (LSA) to investigate whether individuals habituate to air pollution and if a potential habituation effect influences the marginal rate of substitution between air quality and income. My estimation results, based on a data set of 48 countries spanning the period 1990 to 2006, indicate that individuals do not habituate to pollution with particulate matter. Rather, I find that even past pollution levels reduce current utility. This effect tends to increase the value of pollution abatement.