Air Pollution, Outdoor Activities, and Small Business

Abstract

Air pollution may harm businesses that rely on the physical traffic of customers. We exploit distribution of air pollution in the surroundings of a traditional small business, restaurants, to estimate its effect on their business performance. Using data on three groups of chain restaurants in Beijing, we show that pollution reduces their revenues on the weekends, when most people can choose to stay indoor to avoid pollution, and this effect is accounted mainly by the corresponding effects on extensive margins. Pollution-induced change in local outdoor activities is a mechanism. Home-delivery revenue cannot offset the pollution-induced loss in the dining-in revenue.

Keywords: Air pollution, traffic flow, business performance, small business

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