Measuring Economics Benefits for Amenity Consequences of Land Cover Changes

EPA Grant Number: R829508
Title: Measuring Economics Benefits for Amenity Consequences of Land Cover Changes
Investigators: Smith, V. Kerry , Palmquist, Raymond B. , Phaneuf, Daniel J.
Institution: North Carolina State University
EPA Project Officer: Hahn, Intaek
Project Period: October 1, 2001 through September 30, 2004
Project Amount: $299,855
RFA: Decision-Making and Valuation for Environmental Policy (2001) RFA Text |  Recipients Lists
Research Category: Economics and Decision Sciences


This research proposes to develop a single, integrated model to describe household choices relevant for measuring the benefits arising from improved surface water quality, so that two objectives can be met. First, the framework will permit the primary revealed preference methods for non-market valuation to be nested within a single, consistent model of choice. Second, the approach recognizes the importance of the spatial delineation of economic activities and their implications for the quality of watersheds and related resources.


With a single integrated database combining information about economic choices and water quality conditions, it should be possible to test a nested series of hypotheses. A few examples, grouped by the research objective associated with the tests, include:

A. Overlap in Benefit Measures

  • water quality measures closest to a home site are most relevant to hedonic property value models;
  • local water quality and proximity to selected recreation sites, along with their water quality measures, influence hedonic property value models;
  • water quality, land characteristics, and recreation site characteristics influence household locational choices in a locational equilibrium model;

B. Endogeneity in Water Quality Measures

  • decisions that alter land cover from an undeveloped state to a developed state within well defined watersheds influence water quality measures;
  • hedonic models describing housing prices can treat the link between land use and water quality near each property as determined independently of the housing market choices;
  • models describing household choices among a finite set of neighborhoods (or communities) within a county must incorporate the interrelationship among land use decisions, their impacts on water quality, and the feedback effects on household demands for water-based amenities;

C. Transferability of Benefit Measures Across Applications Different from the Study Area

  • benefit measures for a water quality change developed from a random utility recreation demand) model can be treated as separable from the other locational attributes of both recreation sites in the area used to develop the model and the spatial context of the origin zones;
  • benefit measures for a water quality change developed using a hedonic property value model can be treated as separable from other locational attributes of the market area and the recreational alternatives available to households;
  • partial equilibrium benefit measures (i.e., assuming households do not change where they reside due to changes in housing prices and/or amenities) can be used to approximate general equilibrium benefit measures for small, localized water quality changes.

It will not be possible to subject all these hypotheses to formal statistical tests. In several cases, our "tests" will necessarily be based on sensitivity analyses and a "weight of the evidence" standard.


The research will utilize three existing databases and acquire new information from households that will be specifically linked to one of these existing databases to test several hypotheses about the suitability of water quality valuation methods.

The first data source involves housing and land sales for all transactions between 1966 and 1999 in Wake County, North Carolina. These data have been acquired from a commercial vendor and include the sales price, as well as an array of housing and land characteristics.

The second database consists of the water quality conditions in areas of the state likely to be impacted by land uses in Wake County. This information is available from EPA's Watershed indicators web site.

The third database provides the North Carolina component of the 1994 EPA National Recreation Survey. The new data to be collected will involve a mailed survey to random samples of approximately 5,000 of the current homeowners (based on the Wake County tax assessment records).

The survey will collect essential socio-economic characteristics and water-based recreation choices of these households in order to be integrated with the housing sales and water quality databases for testing the interrelationship among three approaches to benefit measurement ? hedonic property value, random utility (for recreation site choices), and locational equilibrium models.

The fourth framework, land conversion models, involves reduced form equations that describe how location specific attributes influence the conversion of land from agricultural, forested, and other less developed uses to residential uses. These models have an indirect role in benefit measurement through their contribution to a description of how land conversion affects water quality.

Expected Results:

This study will allow all of the relevant revealed preference methods to be applied to a common database for an important environmental resource. Moreover, it will provide a comparison of partial and general equilibrium welfare measures for water quality changes. The approach used here will describe how land conversion affects water quality and recreation, which in turn, affects housing value. This research will also provide a basis for transferring the benefits of water quality improvement in one situation to another situation with different characteristics, by developing one set of estimates for all of the revealed preference methods and relevant characteristics in one area.

Publications and Presentations:

Publications have been submitted on this project: View all 20 publications for this project

Journal Articles:

Journal Articles have been submitted on this project: View all 6 journal articles for this project

Supplemental Keywords:

revealed preference, non-market valuation, random utility, hedonic property value, household choice, water quality value, land conversion, recreation value., RFA, Scientific Discipline, Economic, Social, & Behavioral Science Research Program, Economics and Business, decision-making, Ecology and Ecosystems, Economics & Decision Making, ecosystem valuation, residential property values, model aggregation methods, economic benefits, landowner behavior, measuring benefits, valuing environmental quality, recreational value, cost benefit, environmental values, household choice, land cover changes, water quality value, behavior model, efficient household framework

Progress and Final Reports:

  • 2002 Progress Report
  • 2003 Progress Report
  • Final