Air Pollution, Traffic, and Retail Business

Abstract

We study the effects of air pollution on business performance of a retail industry: restaurants. Using contemporaneous data, we link the business outcomes of a chain restaurants in Beijing to traffic and pollution in their surroundings. Air pollution has adverse effects on restaurant revenue, both dining-in and home-delivery business, and their extensive and intensive margins. Pollution-induced change in local traffic, a proxy for customer flow, is a mechanism of the effects. This is validated further by our result that pollution affects restaurants only during the weekends, when people can choose to stay indoors to avoid pollution, which is a costly option during the weekdays since people have outdoor obligations. We highlight a new dimension of the costs of air pollution by documenting its adverse effects on a traditional retail industry.

Keywords: Air pollution, traffic flow, business performance, retail industry

JEL Classification: E32, I18, L66, Q51, Q53, R11, R41