Air Pollution, Outdoor Activities, and Small Business

Abstract

The social cost of pollution avoidance behavior has received less attention. We attempt to shed light on the effect of a particular pollution avoidance behavior, reducing outdoor activities, on small businesses that rely on the customers visiting their premises. We estimate the causal effect of air pollution on business performance of ninety-six restaurants from three groups of chain restaurants in Beijing that have similar characteristics but experience varying levels of air pollution due to their different location. We show that air pollution has an adverse effect on their business performance especially on the weekends, when most people can choose to stay indoors to avoid air pollution since they do not have outside obligations (e.g., work or school). In comparison, the adverse effect on the weekdays, when the opportunity cost of failing to meet outside obligations is high, is relatively weaker and less robust.

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

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