Stigma of Environmental Damage on Residential Property ValuesEPA Grant Number: R825995
Title: Stigma of Environmental Damage on Residential Property Values
Investigators: Rausser, Gordon C.
Institution: University of California - Berkeley
EPA Project Officer: Lee, Sonja
Project Period: October 1, 1997 through August 31, 1998
Project Amount: $42,260
RFA: Decision-Making and Valuation for Environmental Policy (1997) RFA Text | Recipients Lists
Research Category: Economics and Decision Sciences
Description:There has been much disagreement about how to best measure the benefits of cleanup of hazardous waste sites. In 1980, Congress mandated the EPA to clean up abandoned hazardous waste sites. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) required the EPA to establish criteria to prioritize sites based on risks to health, environment, and welfare. Welfare was interpreted to mean impacts associated with health and the environment, not economic and social impacts. (Greenberg and Schneider, 1995) Consequently, the real effect of hazardous waste sites on property values are often left out of cost-benefit analyses. Including losses in property values in the analyses may yield a different conclusion about the effectiveness of remedial actions.
Previous academic studies have attempted to measure benefits from the cleanup of hazardous waste by showing that residential property values become lower as the distance to a hazardous waste site decreases. Extending this argument, if the hazardous waste site is removed, then the discount for being in a location that is close to a former hazardous waste site should be recovered. After environmental contamination is completely cleaned up, ceteris paribus, one would expect residential property values to regain their lost values. The benefits of cleanup are then the difference between what property values would be if the hazardous waste site never existed and what property values are with the hazardous waste site. We argue that this reasoning is faulty because of hysteresis or path dependence. Furthermore, if stigma effects from a site exist, then past studies have overvalued the benefits of cleanup of hazardous waste sites.
This project will add to the existing literature on the impact of environmental contamination on residential property values because property values are analyzed over a lengthy period of time. Specifically, existing studies have not looked at property values after cleanup has been completed. It is of questionable value to measure the benefits of cleanup without looking at post-cleanup property values.