Stigma of Environmental Damage on Residential Property Values

EPA 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.

Approach:

We present an economic model of hysteresis. We will use the hedonic price technique (Rosen, 1974) to test for stigma from environmental damage on residential property values. The level of environmental quality can be considered to be a qualitative characteristic of a differentiated good market. Consumers can choose the level of environmental quality through their choice of house. Housing prices may include premiums for locations in areas with high environmental quality. If so, the price differentials may be viewed as implicit prices for different levels of environmental quality.

Expected Results:

We expect to find the existence of stigma from environmental damage on residential property values.

Publications and Presentations:

Publications have been submitted on this project: View all 5 publications for this project

Supplemental Keywords:

Public policy, compensation, environmental assets., RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Economics, decision-making, Ecology and Ecosystems, Economics & Decision Making, ecosystem valuation, valuation, economic research, hazardous waste siting, belief system, economic benefits, property values, environmental values, market valuation models, clean-up strategies, path disturbance, cost/benefit analysis, environmental policy, house prices, public values

Progress and Final Reports:

  • Final Report