Introduction

Air Pollution is a major environmental problem in both developed and developing countries. The harmful effects of air pollution include corrosion of metals and buildings, reduction in visibility, degradation of soil due to acid rain, depletion of the ozone layer, global warming and damages to human health. However, researchers are more concerned with damages to human health as human capital is the primary contributor to economic welfare. The health effects are more intense in urban cities with significant emission sources, unfavourable dispersion characteristics and high population densities. Many health problems like eye irritation, respiratory illnesses etc., may be directly attributable to exposure to air pollution. If not treated in time, acute illnesses may become chronic due to prolonged and continuous exposure to air pollution. Air pollution induced illnesses result in increased expenditures on mitigating activities and a loss in wages to people. Welfare gains would occur if air quality is improved to safe levels.

The link between exposure to air pollution and health-related social costs is well established in the west. Studies in the past have used the benefit transfer approach to estimate the willingness to pay for improved air quality (Alberini and Krupnick, 1997) in developing countries. However, this method, which relies on developed country estimates, does not take into consideration country specific socio-economic characteristics, baseline health, behavioural responses, pollution levels, characteristics of pollutants, weather conditions etc. and therefore may yield misleading results.