Environmental Valuation & Cost-Benefit News

This paper develops and applies a space-based strategy for overcoming the general problem of getting at the demand for non-market goods. It focuses specifically on evaluating one form of environmental quality, distance from EPA designated environmental hazards, via the single-family housing market in the Puget Sound region of Washington State. A spatial two stage hedonic price analysis is used to: (1) estimate the marginal implicit price of distance from air release sites, hazardous waste generators, hazardous waste handlers, superfund sites, and toxic release sites; and (2) estimate a series of demand functions describing the relationship between the price of distance and the quantity consumed. The analysis, which represents a major step forward in the valuation of environmental quality, reveals that the information needed to identify second-stage demand functions is hidden right in plain site — hanging in the aether of the regional housing market.

Results:
Because sales price and the distances from ... five environmental hazards are all expressed in natural log form, the distance parameters are elasticities. On average, these elasticities reveal that preferences for this form of environmental quality are ordered as follows: superfund sites (0.06) greater than toxic release sites (0.02) greater than air release sites (0.017) greater than hazardous waste generators (0.01) greater than hazardous waste handlers (0.003). And, as the marginal implicit prices ... reveal the average transaction contributed: (1) $1.36 for an additional foot of distance from the nearest air release site; (2) $2.89 for an additional foot of distance from the nearest hazardous waste generator; (3) $0.00 for an additional foot of distance from the nearest hazardous waste handler; (4) $0.76 for an additional foot of distance from the nearest superfund site; and (5) $0.99 for an additional foot of distance from the nearest toxic release site. These are the mean values of the estimate of marginal implicit price required for the second stage demand functions. Note, however, that these estimates are average prices per foot of distance across all distance consumed and that, because of diminishing marginal utility, the first foot of distance from an environmental hazard is far more expensive than, say, the 40,000th foot. A clearer picture emerges, then, from the total implicit expenditures ... [which show] that the average home, which sold for $383,440, involved a total implicit expenditure of: (1) $5,988.21 on distance from the nearest air release site; (2) $5,514.45 on distance from the nearest hazardous waste generator; (3) $18.99 on distance from the nearest hazardous waste handler; (4) $23.871.92 on distance from the nearest superfund site; and (5) $6,909.00 on distance from the nearest toxic release site.

by John I. Carruthers 1 and David E. Clark 2
1. U.S. Department of Housing and Urban Development, Office of Policy Development and Research; University of Washington, Department of Urban Design and Planning; University of Maryland, National Center for Smart Growth Research and Education (e-mail: john.i.carruthers@hud.gov)
2. Marquette University, Department of Economics (e-mail: david.clark@marquette.edu)

U.S. Department of Housing and Urban Development working paper # REP 07-01
Marquette University School of Business Administration www.busadm.mu.edu
http://www.busadm.mu.edu/mrq/workingpapers/wpaper0702.pdf
Working Paper 0702, 2007
via REPEC www.REPEC.org