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Measuring Economics Benefits for Amenity Consequences of Land Cover Changes

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Objectives/Hypothesis:
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.
Hypotheses:
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.

Approach:
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.

Metadata

EPA/NSF ID:
R829508
Principal Investigators:
Smith, V. Kerry
Palmquist, Raymond B.
Phaneuf, Daniel J.
Technical Liaison:
Research Organization:
North Carolina State University
Funding Agency/Program:
EPA/ORD/Valuation
Grant Year:
2001
Project Period:
October 1, 2001 to September 30, 2004
Cost to Funding Agency:
$299,855
Project Status Reports:
For the Year 2002:

Objective:

The objectives of this research project are to: (1) describe household choices in a framework that recognizes the assumptions and informational requirements of revealed preference methodologies (e.g., hedonic, random utility, and other models used to value changes in site specific amenities); and (2) incorporate a more explicit account of how economic activities impact environmental resources in these models. The specific focus of our research involves the quality of watersheds and related resources.

Our approach is intended to compare three methods: hedonic property value, random utility, and locational equilibrium models applied to Wake County, NC. To accomplish this comparison as a first step toward developing an integrated model, we proposed to use several existing databases, augment them with locationally delineated information on soil characteristics and water quality, and collect new data on a sample of households living in Wake County. The first database to be used for this analysis involves housing sales for Wake County, NC. The second involves measures of water quality likely to be impacted by land uses, relying on the U.S. Environmental Protection Agency (EPA), the U.S. Geological Survey (USGS), and the North Carolina Division of Water Quality (NC/DWQ) measurements. The last existing data set initially was proposed to be the 1994 EPA National Recreation Survey for NC. At this point, we have revised this focus to be the NC component of the 2000 National Recreation Survey.

Progress Summary:

Task 1: Select a Database for Hedonic Property Analysis and Integrate Housing With GIS Databases

We have access to two sets of information on housing sales. The first is from TransAmerica Intellitech (now merged with First American Real Estate Solutions). These data span a period from the early 1970s to the late 1990s. In the early years of the sample, the coverage of housing sales is not as complete as in most recent years. In addition, based on one of the investigator's (Ray Palmquist) collaborations with the Wake County Property Tax Office, we have all housing sales records from 1992 to 2000 for Wake County, and the assessment data for houses that did not sell in this period.

To date, we have developed three links to ARCVIEW shape files describing either watershed characteristics or neighborhoods. Two watershed definitions have been used for these connections. The first was developed by Palmquist and Phaneuf. Based on the USGS hydrologic unit classification (HUC), their analysis examined the segments of the Neuse River and its major tributaries with monitoring stations, and used the location of the stations to subdivide the HUCs into mini-HUCs so that each spatial unit has one water quality monitor.

The second geographic structure is derived from an initiative recently completed in Wake County. In November 2000, the Wake County Commissioners approved the development of a comprehensive watershed management plan. The plan was completed at the outset of our research, and it was made possible through persistent effort to obtain access to the GIS shape files used by the firm (CH2MHill) developing the plan, and to obtain the data the firm's analysts used in assessing the watersheds they defined for the county. Their analysis identified 81 watersheds in Wake County and assembled information on the variables.

The property sales records have been linked to both the Palmquist-Phaneuf classification scheme, allowing access to the water quality data linked to their mini-HUCs, and the CH2MHill classification scheme. Some of the features of the water quality measures being collected are described below.

These data also have been linked to shape files that describe spatial classifications of the county that could provide the basis for defining neighborhoods. The first of these is the census tracts for the county, the second is a 91-unit neighborhood structure developed by Randy Walsh that is based on the nodes that the Wake County Board of Education uses to route school buses.

These spatial delineations of the county have two roles. As we have already noted, they provide a basis for linking environmental quality measures to the individual properties falling within each spatial unit. In addition, in the case of the census tracts, they provide a basis for linking socioeconomic variables describing neighborhood characteristics.

Finally, they offer alternative definitions for the basic units to be used in defining the basic spatial units for the locational equilibrium models to be developed as part of this research.

Task 2: Design of Questionnaire for Mail Survey of Wake County Households

The new data to be collected in January and February 2003, are intended to supplement the housing sales price data. This effort is being designed to collect information about the economic and demographic characteristics of a sample of current homeowners in Wake County that could be matched to the housing data.

Our research proposal calls for a sample of approximately 5,000 homeowners in Wake County, collected via mail. Using the information from the housing sale data, the results of the survey can be matched to the hedonic data.

Four themes will be considered in this survey: (1) perceptions of the neighborhood and locational amenities relevant to housing choice decisions; (2) water-based recreation, including local and more distant recreation trips; (3) perceptions of water quality and the link between physical measures and other visual indicators; and (4) time allocation and the factors influencing the opportunity cost of time relevant to recreation models.

In addition to these attributes, we expect to collect a detailed set of socioeconomic characteristics of the respondents.

Two focus groups have been conducted. The first (July 23, 2002) considered the issues in eliciting information about recreation choices, the meaning of neighborhood and spatial amenities, and water quality perceptions. The second focus group (October 8, 2002) focused on local recreation outings, time allocation, and water quality perceptions.

After the first focus group was completed, a draft questionnaire was prepared. It has been subjected to three revisions to date: one before the second focus group, and two after the summary of findings from the second group were discussed. An analysis plan for the data to be collected was outlined. Based on this analysis plan, further revisions to the questionnaire were underway at the close of the project year.

A few key conclusions emerged from each focus group. They are summarized for each session individually:

Focus Group 1: (July 23, 2002)

Factors in Households' Locational Choices. Job and employment are dominant considerations in household choices. Proximity to family, and weather and climate also were important factors. Highway congestion also was noted; recreation was a consideration but not a dominant factor.

Household Concept of Neighborhood. Most participants identified neighborhood with housing subdivision, provided the area was not too large or subject to periodic expansion.

Features of Household Recreation Choices. Time, rather than distance, was the key consideration in defining what participants meant by local recreation. Participants would not travel more than 2-3 hours for a day trip.

Perceptions of Water Quality. Participants had wide differences in their perceptions of water quality. Neither exercise performed well in eliciting clear-cut responses. The responses of the first focus group motivated the questions used in the second focus group to obtain valuation information. Most participants could be classified into using either visual inspection or relying on authorities (i.e., the government) to provide information.

Focus Group 2: (October 8, 2002)

Use of Time. Participants could describe time allocations; many thought that there were various local recreation activities that could be done in short periods of time. Some could use periods as short as 1 hour. The activities would vary with the amount of time available.

Description of Recreation. Participants made a clear distinction between local outings, day trips, and longer. Participants would distinguish between them. Time was key constraint for local recreation. Planning increases with length of trip.

Water Quality Perceptions. People used photos to describe water quality ratings affected by use; previous visual experiences affected ratings. A variation on Resources for the Future's water quality ladder seemed to provide an effective approach to eliciting water quality perceptions.

Overall Judgment. The second group resolved key issues for surveys including: (1) a description of neighborhoods, (2) specification for factors in location choice, (3) a vehicle for water quality perception, and (4) a definition for local recreation.

Task 3: Development of a Water Quality Database

Water Quality Data have been assembled from a variety of sources, and all data are geo-coded. These measures are not available for all stations in all years. We are in the process of developing a single unified database to evaluate the coverage of the water quality data for the watersheds in Wake County.

At the close of the year, the team had agreed upon a format for the data sources, time spans, and general information assembled for the project, and the Ph.D. research assistant had outlined a strategy for merging the data in a GIS compatible format.

Task 4: Preliminary Analysis of Water Quality/Land Conversion Models as Part of Companion Research (Palmquist and Phaneuf)

Closely related research on the effects of land use conversion on water quality is nearing completion. The research is developing and estimating models to predict where development takes place, and what effect development has on nearby streams, lakes, and rivers. This research also focuses on Wake County, so that the results may be used in the current project.

The water quality model is using spatial econometrics to estimate the effects of past and current development within small geographic units (mini-HUCs) on objective measures of water quality in the adjacent waterways. We are controlling wastewater treatment plant discharges and rainfall, as well as water quality in the upstream waterway (spatial lags). We are using phosphorous, total nitrogen, total suspended solids, and the pollutants most likely to be influenced by development. The results seem to be quite robust and in accordance with our expectations.

We also are using a discrete duration model to explain the development decision using land and location characteristics as well as characteristics such as the presence of a sewer system. We intend to integrate the water quality and duration models in the near future.

Task 5: Conceptual Modeling for Locational and Joint Hedonic/Recreation Models

Currently, Dr. Smith is working with a graduate student (Jaren Pope) supported by the project. They are investigating the neighborhood definitions using simple hedonic property value models. The objective is to evaluate the range of price indices developed for alternative neighborhood definitions, and the consistency of their ranking with the ranking of local attributes conveyed through location in neighborhoods (i.e., following the logic of Drs. Sieg, Smith, Banzhaf, and Walsh, Journal of Urban Economics, July 2002).

Drs. Palmquist, Phaneuf, Pope, and Smith have initiated the process of developing extensions to the McConnell (Land Economics 1990) and Parsons (Land Economics 1991) hypothesis that hedonic and travel cost models should be jointly determined. Our focus has been on the types of recreation that likely are to be directly affected by residential location.

Future Activities:

Future activities for this research project include the following:

Survey of Households. The final mail survey will be implemented in early 2003. We expect work to require 2 to 3 months of effort from printing to multiple mailings and data entry.

Recreation Data. We contacted Dr. V. Robert Leeworthy to acquire the 2000 National Recreation Survey. He has agreed to provide the data requested. We expect to finalize the acquisition of these data and start work with them on the random utility model (RUM) component of the analysis.

Locational Equilibrium Modeling. With the assistance of Dr. Daniel Hallstrom (an Agricultural Resource Economics faculty member), a preliminary, simpler program for estimating preference parameters for the locational equilibrium model has been developed. We expect to refine this code and to initiate comparisons of alternative models.

Local Recreation and Residential Choices. We expect to extend our initial conceptual modeling in this area and use the survey data, along with the housing data, to develop tests of the most direct hypotheses implied by the model.

Hedonic Modeling. Dr. Palmquist has added a detailed array of location-specific data to the Wake database. Soil characteristics and watershed measures had been linked via GIS. We expect to enhance initial hedonic models with these new data.

Supplemental Keywords: revealed preference, non-market valuation, random utility, hedonic property value, household choice, water quality value, land conversion, behavior model, benefits assessment, economic benefits, ecosystem valuation, efficient household framework, environmental values, household choice, land cover changes, measuring benefits, model aggregation methods, residential property values.

Project Reports:
For the Year 2003
Objective:
The objectives of this research project are to: (1) describe household choices in a framework that recognizes the assumptions and informational requirements of revealed preference methodologies (e.g., hedonic, random utility, and other models used to value changes in site specific amenities); and (2) incorporate a more explicit account of how economic activities impact environmental resources in these models. The specific focus of our research involves the quality of watersheds and related resources.

Progress Summary:
The research is intended to compare three methods: hedonic property value, random utility, and locational equilibrium models applied to a common area in Wake County, NC. To accomplish this comparison as a first step toward developing an integrated model, we will use several existing databases, augment them with locationally delineated information on soil characteristics and water quality, and collect new data on a sample of households in Wake County. The first database to be used for this analysis involves housing sales for Wake County. The second involves measures of water quality likely to be impacted by land uses, relying on U.S. Environmental Protection Agency (EPA), U.S. Geological Survey, and local North Carolina Division of Water Quality measurements. The last existing data set initially was proposed to be the 1994 U.S. EPA National Recreation Survey for North Carolina. At this point, we have revised the focus to be the North Carolina component of the 2000 National Recreation Survey.

During this project period, the research team: (1) completed the selection of the hedonic database for analysis, integrated it with two established geographic information system (GIS) formats, and defined a new GIS format for testing; (2) designed a household survey and mailed the survey to 7,500 households in Wake County, receiving a 31 percent response rate (all data were entered by the end of the year); (3) completed development of a water quality database in a format that allows these data to be merged with the hedonic and survey data; (4) developed preliminary analyses of water quality/land conversion models, random utility models with water quality measures, hedonic models with distance to freshwater sites included, and developed and assembled data for locational equilibrium models; (5) initiated conceptual analysis on the modeling of local recreation and the role of opportunity cost of time in individual choice, investigated alternative preference restrictions for the treatment of environmental amenities such as watershed quality; and (6) members of the project team made six presentations and completed work on four draft papers; one has been submitted for publication, others are being revised for publication.

Future Activities:
The researchers plan to: (1) complete the cleaning of the Wake County household survey data during the early part of the year; (2) develop an aggregate selection model for a household survey to test for the effects of the lower than anticipated response rate; (3) prepare a paper describing the issues in linking the economic and geomorphological data using the water quality database developed for the project; (4) complete the conceptual analysis for local recreation and develop a paper describing the conceptual analysis and the empirical results derived from the homeowner survey; and (5) complete the initial work on the role of watershed quality for the random utility, hedonic, and locational equilibrium models.

Publications and Presentations:
TypeCitation
Journal ArticleSmith VK, Banzhaf HS. Quality adjusted price indexes and the Willig condition in one graph. Economics Letters.
Supplemental Keywords:
geographic information system, GIS, economic benefits, land cover, water quality, random utility model, hedonic model, locational equilibrium model, Wake County, North Carolina, NC, recreation, opportunity cost, choice, environmental amenities, household, freshwater, survey, homeowner, watershed, geomorphological data. , Economic, Social, & Behavioral Science Research Program, RFA, Scientific Discipline, Economics, Economics & Decision Making, Economics and Business, decision-making, behavior model, benefits assessment, cost benefit, economic benefits, ecosystem valuation, efficient household framework, environmental values, household choice, land cover changes, landowner behavior, measuring benefits, model aggregation methods, recreational value, residential property values, valuing environmental quality

For the Year 2004:
Objective:
The objectives of this research project are to: (1) describe household choices in a framework that recognizes the assumptions and informational requirements of revealed preference methodologies (e.g., hedonic, random utility, and other models used to value changes in site specific amenities); and (2) incorporate a more explicit account of how economic activities impact environmental resources in these models. The specific focus of the research involves the quality of watersheds and related resources.

The approach is intended to compare three methods (hedonic property value, random utility, and locational equilibrium models) applied to a common area (Wake County, North Carolina). This comparison was viewed as a first step toward developing an integrated model. We proposed to use several existing databases, augment them with locationally delineated information on soil characteristics and water quality, and collect new data on a sample of households living in Wake County. The first database to be used for this analysis involves housing sales for Wake County. The second database involves measures of water quality likely to be impacted by land uses, relying on U.S. Environmental Protection Agency (EPA), U.S. Geological Survey, and local North Carolina Department of Water Quality measurements as well as a detailed evaluation of watersheds commissioned by Wake County. The researchers discovered in the process of developing these data that the consulting firm CH2M Hill had undertaken a detailed evaluation of the Wake County watersheds. They were able to assemble all the data developed for their evaluation as well as the details of their methods. They also planned and implemented a mail survey of county homeowners to elicit information about their recreational activities and reasons for selecting their homes, as well as conventional demographic and economic characteristics. The last data set to be considered in their analysis is the North Carolina component of the 2000 National Recreation Survey.

Progress Summary:
The research activities during Year 3 of the project focused on work associated with the conceptual and empirical modeling of the interrelationships between hedonic, random utility, and locational equilibrium models for estimating the economic value of environmental amenities related to watershed resources. This research is divided into three sets of activities: (1) cleaning of the stated choice, recreational use, and demographic and economic data from the household survey; (2) development of conceptual analyses of the relationship between amenities and the various choice margins available to recover preference information; and (3) empirical analyses and preparation of manuscripts.

Survey Data Cleaning

Dr. Smith managed the survey and data entry activities. Cleaning required developing an inventory of all response codes falling outside the anticipated domain (e.g., reporting ranges rather than numbers, text answers, answers that displayed inconsistencies with questions, etc.). Cross checks for entry errors also were developed as part of data cleaning. The process involved a systematic review of all nonstandard responses and outliers by Dr. Smith working with a graduate student (Brian Stynes) supported by the project. Each outlier was rechecked against the original questionnaire. The end product of the process was a set of recodes documented in STATA do-files that provides all the transformations to the original data file to convert nonstandard responses and correct data entry errors. These do-files were reviewed by Drs. Palmquist and Phaneuf and then archived.

A second component of the data analysis required three steps. Many respondents misinterpreted the maps and site codes distributed with the mail surveys. A separate map and site legend was distributed for short outings, for 1-day trips, and for 2-day trips. Many respondents did not follow directions and used the same map for all three types of trips. In addition, respondents marked map sites that were not identified in either legend.

The first step in the process required a complete check of the site identification to evaluate which legend was used correctly and, if errors were made, to correctly identify the actual site selected for use. Dr. Smith worked with a graduate student (Brian Stynes) to review every returned survey and developed a protocol for corrections. These changes were documented and archived in STATA Do-files. This process assures the original survey remains intact and the decisions required because of inconsistencies in respondent answers are documented.

The second step in the process required geocoding all sites identified in the source materials as well as the new sites identified by respondents. This process is essential for specifying the choice set of recreation available to each household and for estimating the distance and travel time for each potential choice alternative. Two graduate students (Jaren Pope and Brian Stynes) developed a complete inventory of 231 sites, including both the sites identified in the survey materials and the new sites reported in the survey responses.

The last step in the process required estimating the distance and travel time to each site. To assure maximum flexibility in composing models to describe recreation choices, we structured a separate database. These data include the distance and travel time for every respondent to every site. This implies estimating these variables for every household regardless of whether they actually used all sites. These data serve as a key resource in implementing random utility models to describe how the description of individual behavior is sensitive to the description of the choice set characterizing substitution alternatives.

Constructing these estimates for local outings required significantly more detailed checking than is normally required with the use of available route, distance, and time estimation software because these programs are designed for use with longer trips. The travel time and distance between each survey respondent’s house and each recreation site were calculated using the PCMiler software. PCMiler calculates distances between latitude-longitude points along a road network, and then estimates travel times using speed-limit information. It has been commonly used in travel cost models to calculate travel times and distances, however, it is designed for the trucking industry. Thus, one of PCMiler’s drawbacks is that the road network it uses to calculate the times and distances is composed of roads that are accessible to trucks. The error in estimating travel times and distances using a network of major roads accessible to trucks is likely to be largest for the sites used for local outings.

To decrease the measurement error that might be introduced with PCMiler in these cases, an alternative strategy was developed using ArcView. Using a comprehensive road network, including minor roads developed by “Tigerline” (Census 2000 TIGER/Line Data is provided by the U.S. Bureau of the Census) for Wake County, travel times and distances from survey households to local recreation sites were calculated within ArcView. One exception was the calculation of times and distances to Jordan Lake, a popular local recreation destination located just outside Wake County. By calculating the travel time and distance to the county line, and by adding this time and distance to the PCMiler estimate from the county line to the site, a more accurate time and distance was generated to this recreation site. To determine if the other ArcView estimates were more accurate than the PCMiler estimates for the local recreation site, a sample of 20 households and 10 recreation sites were compared to estimates produced by MapQuest, an online service that also uses major and minor roads in their calculations. Based on the Sum of Squared Errors, it appears that the ArcView estimates were more accurate than the PCMiler estimates for the local recreation sites. Thus, we replaced the PCMiler times and distances with the ArcView times and distances for local recreation sites.

Development of Conceptual and Computational Analyses for Research

Conceptual . Developing integrated models of the role of environmental amenities related to watersheds in economic choice models requires considering how these nonmarket services contribute to individual preferences and the resulting implications for what can be learned from consumers’ choices.

The first set of our research involved the use of alternative preference restrictions. Drs. Palmquist and Smith, in separate research, reconsidered the treatment of weak complementarity in revealed preference models. These activities were undertaken as extensions to research already underway. The result was extensive revision to three initial papers and the preparation of two new papers. Two of these five papers have been accepted for publication and three are being revised in response to revise and resubmit decisions by the journals.

In addition, Drs. Phaneuf and Smith completed extensive revisions for their North Holland Handbook series chapter for the Handbook in Environmental Economics, Volume II, on recreation demand models. This work was completed as part of the required conceptual work associated with developing recreation models to evaluate the amenity services of watershed resources. The chapter is now final and it is expected that the volume will appear in 2005.

Finally, two new sets of conceptual models were developed during the year. The first of these analyses was motivated by insights derived from the focus groups. It arises from the recognition that conventional models for describing the opportunity costs of time are unlikely to be relevant to short (i.e., 3-4 hours or less), local recreational outings. As a result, Dr. Palmquist led the process of reconsidering how a household production framework could be used to recover estimates of the short run or constrained value of time for these objectives. The model was successfully implemented using our survey responses on actual time allocations together with a stated choice question offering flexible services for household activities. A paper describing the model (Palmquist, Phaneuf, and Smith, 2004) was presented at the annual meeting of the American Agricultural Economics Association in August 2004, and the Heartland Environmental Economics Conference at Iowa State in September 2004. This paper is being revised for submission to a journal in early 2005.

The second new conceptual analysis was proposed by Dr. Phaneuf and implemented by Drs. Smith and Palmquist. This framework suggests a new interpretation of choice models as a source of indices of recreation alternatives that allow the complexity of spatially delineated and diverse recreation alternatives to be described as a consistent economic index—the expected value of the maximum utility that can be derived from a choice set available to homeowners because of the selection of a specific neighborhood.

The logic associated with this proposal was implemented, taking advantage of the spatial structure built into the design of our integrated hedonic, household survey, and water quality database. This allowed estimation of 19 separate random utility models—one characterizing the recreation choice alternatives for each of the Multiple Listing Zones used to delineate how realtors characterize housing neighborhoods in Wake County.

Estimates of these indices then were used to measure an access index and a quality-adjusted index of the expected recreation opportunities for each home. With the spatially linked hedonic database, it was possible to estimate an upper bound for willingness to pay for improvements in watershed amenities as reflected in enhanced recreation opportunities.

The results of the conceptual and empirical analyses are described in a new paper (Smith, Phaneuf, and Palmquist, 2004), which was presented by Dr. Smith at EPA’s Valuation of Ecological Benefits: Improving the Science Behind Policy Decisions meeting held in October 2004. These results also are scheduled to be presented by Dr. Phaneuf at the Allied Social Science Association (an Association of Environmental and Resource Economists session) in January 2005.

This analysis also takes advantage of the Palmquist, et al. (2004) proposed methodology for measuring the opportunity cost of time to compare the hedonic upper bound with more conventional recreation-based measures of the willingness to pay for quality enhancements in recreation sites. This paper probably will be restructured into at least two separate manuscripts. The paper provides a direct implementation of the integration strategy proposed in our initial research outline, and as a result illustrates the value of spatial integration of hedonic, recreation, and water quality data.

Computational. Our activities in developing methods to improve the feasibility of estimating complex mixed discrete/continuous models have been undertaken in parallel with the data cleaning, conceptual analyses, and paper presentation. One aspect of this work is a paper (von Haefen and Phaneuf, 2004) on the opportunities to use Bayesian methods and Gibbs sampling in the estimation of Kuhn-Tucker corner solution models.

The only area where our planned research has been behind relates to the locational equilibrium model. As our 2003 annual report suggested, our estimates for the price indices estimated at the Multiple Listing Service level, as well as measures for the watershed quality indices, appear consistent with the ordering properties associated with the locational equilibrium model. Estimation has proved more challenging.

Our objective has been to develop a MATLAB set of source code for the framework. A new graduate student familiar with MATLAB (Nicolai Kuminoff) has been added to the project team for the spring semester of the 2004-2005 academic year and for the summer to recode the initial programs and work with Dr. Smith to complete the locational equilibrium model. This also is an area for this student’s Ph.D. thesis research. As a result, we expect to be able to complete this final aspect of our proposal activities during the first half of the last year of the project.

Empirical Analysis and Preparation of Manuscripts

With the data cleaning completed, we undertook analyses of both stated choice and revealed choice data from both the survey data and the hedonic housing sales data for five sets of modeling activities:

    • Conventional hedonic models for local water quality measures;
    • Evaluation of price indices for alternative spatial definitions of local neighborhoods for the locational equilibrium model;
    • Joint estimation of revealed time allocation and stated time service purchased for the model of the opportunity cost of time;
    • Nineteen (19) random utility models for local recreation outings based on our homeowner survey; and
    • Integrated hedonic and random utility models to estimate an upper bound for the willingness to pay for enhanced local recreation opportunities.
Four of these activities, as discussed in the preceding section, contributed directly to research papers from our project. Research from our activities resulted in five published or forthcoming papers, three papers that received revise and resubmit decisions, and three additional completed papers that have been presented at national or specialty workshops. One of these new papers is under review and the other two are being prepared for submission to refereed journals.

Future Activities:
The researchers will complete a paper on the water quality databases and the locational equilibrium modeling. In addition, we have planned a series of papers that describe how the conceptual research and empirical database on watershed services can be used to measure the economic benefits of protecting or enhancing these services. During the last year of the project, we plan to devote the majority of our time to preparing and revising these papers. We anticipate activities in five areas.

Valuing Time

Based on the comments received at the American Agricultural Economics Association session and the Heartland Environmental Economics Conference, we are revising the Palmquist, et al. (2004) paper for submission to a professional journal.

Our survey also includes a conjoint question eliciting time tradeoffs in another format. Preliminary analysis of these results suggests that a random utility model is quite successful in describing these stated choices in a transportation context. The implicit opportunity costs of time are different from what was measured using the household production logic. Of course, the nature of the time usage and discretion in using time savings was quite different. We expect to also prepare a paper describing these distinctions.

Modeling Recreation Choices

Our analysis to date has focused on one component of the recreation data that we collected: the local outings. We expect to undertake several sets of analyses of these data:

    • Evaluating the robustness of our descriptions of the choice of sites for local outings;
    • Modeling 1- and 2-day recreation trips for these households and investigating their interrelationships;
    • Investigating the role of an area of water quality measures for all three types of recreation; and
    • Comparing our findings to the results from the 2000 National Survey on Recreation and the Environment for North Carolina households in urban areas.
We expect that several of these analyses will lead to distinct papers.

Choice Margins: Recreation Demand and the Hedonic Models

Our paper presented at the EPA workshop can be divided into at least two distinctive papers. We also need to reflect the assessment of the roles of water quality measures for the recreation demand models (i.e., the random utility model analyses) in our analyses of the effects of recreation opportunities for housing values.

Once this is complete, we expect to have sufficient research for two papers completed. The first paper will describe the conceptual logic for our index of recreation opportunities. The second paper will illustrate how it can be used in policy applications.

Locational Equilibrium

One important aspect of our proposed research involved comparing travel cost demand, hedonic, and locational equilibrium models’ estimates of the value of improving the quality of urban watersheds. Once the programming effort described above is completed, we expect this analysis will be possible.

Documentation of Databases

We have a documented record for the Wake County water quality records database. We have distributed these data to several other researchers who requested them. We also expect to be able to provide a database that includes the majority of the nonconfidential records for our survey.

Publications and Presentations:
TypeCitation
Journal ArticleAtasoy M, Palmquist RB, Phaneuf DJ. Estimating the effects of urban residential development on water quality using microdata. Journal of Environmental Management (in review, 2004).
Journal ArticleSmith VK. Krutilla’s legacy: twenty-first century challenges for environmental economics. American Journal of Agricultural Economics 2004;86(5):1167-1178.
Journal ArticleBanzhaf HS, Smith VK. Meta analysis in model implementation: choice sets and the valuation of air quality improvements. Journal of Applied Econometrics (in revision, 2004).
Journal ArticleSmith VK, Banzhaf HS. Quality adjusted price indexes and the Willig Condition. Economics Letters (resubmitted, 2004).
Journal ArticleSmith VK, Evans MF, Poulos C, Banzhaf S. Rehabilitating weak substitution. Journal of Environmental Economics and Management (in revision, 2004).
Journal ArticlePalmquist RB. Weak complementarity, path independence, and the Intuition of the Willig Condition. Journal of Environmental Economics and Management (in press, 2004).

Supplemental Keywords:
geographic information system, GIS, economic benefits, land cover, water quality, random utility model, hedonic model, locational equilibrium model, Wake County, North Carolina, NC, recreation, opportunity cost, choice, environmental amenities, household, freshwater, survey, homeowner, watershed, geomorphological data, economic, social, and behavioral science research program, economics, economics and decision making, economics and business, decision making, behavior model, benefits assessment, cost benefit, ecosystem valuation, efficient household framework, environmental values, household choice, land cover changes, landowner behavior, measuring benefits, model aggregation methods, recreational value, residential property values, valuing environmental quality, , Economic, Social, & Behavioral Science Research Program, RFA, Scientific Discipline, Economics, Economics & Decision Making, Economics and Business, decision-making, behavior model, benefits assessment, cost benefit, economic benefits, ecosystem valuation, efficient household framework, environmental values, household choice, land cover changes, landowner behavior, measuring benefits, model aggregation methods, recreational value, residential property values, valuing environmental quality


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