188.8.131.52.3. Hedonic: Waste
The hedonic method was applied to hazardous waste in 1984 in The Benefits of Regulating Hazardous Waste Disposal: Land Values as an Estimator, (EE-0200A, B, C) by Cook, Ferguson, Adler and Vickers. The subject document consists of an executive summary (EE-0200A) and two phases of research (EE-0200B, EE-0200C). The investigators performed a hedonic land value study to value a disamenity, a superfund site. In fact, they studied a site in New Jersey and another in Minnesota in the first phase and concentrated on the former in the second phase. The sites were chosen because both suffered incidents of contamination, allowing before/after value studies to be done. The authors clearly expected to find a value gradient radiating from the sites. Equally clearly, they were disappointed. Their analysis found virtually nothing. Proximity to the dumps did not appear to depress property values.
The investigators attribute the lack of a result to several causes. Both contamination incidents evoked governmental remediation responses which were effective and perceived to be effective, vitiating the expected decline in nearby property values. Such responses are typical and can be expected, diminishing any gradient that might tend to exist. Also, hazardous waste producers might be attracted by the proximity of a dump. Other confounding factors, some site-specific, may have been work as well. Nevertheless, the authors rightly conclude that, “... the finding of no gradient in real estate prices does not constitute evidence that regulating hazardous waste sites is not of economic value.”
Another hedonic hazardous waste study dating from 1986 appears in Improving Accuracy and Reducing Costs of Environmental Benefit Assessments, Volume IV, A Case Study of a Hazardous Waste Site: Perspectives from Economics and Psychology (EE-0285B). The subject document studies property values near a hazardous waste site both before and after its closure. It also considers the subjective risk assessments of the homeowners. The investigators regard the objective health risk to the neighbors as slight; there is only a below threshold level of a carcinogenic gas from polyvinyl chloride. Nevertheless, the hedonic analysis finds a value diminution of $27 million before site closure and $14 million afterwards.
The psychological component of the studies sheds some light on the reason for the value impairment. The homeowners, in surveys, have a bimodal distribution of subjective health risk from the site; many believe they are at substantially elevated risk although objectively they are not. The authors propose a method whereby the homeowners might better inform themselves with confidence and hence might more objectively value their properties.
Using the Hedonic Housing Value Method to Estimate the Benefits of Hazardous Waste Cleanup in Research and Demonstration of Improved Methods for Carrying Out Benefit-cost Analyses of Individual Regulations Volume I Benefit Methodologies Applied to Hazardous Waste (EE-0269A) by Harrison is a 1984 hazardous waste hedonic study. The subject document illustrates the applicability of the hedonic technique to a public good for it which it seems particularly well suited. In the process, the study also estimates the benefits of cleaning up hazardous waste sites using the hedonic housing price approach.
The paper considers cleaning up three hazardous waste sites in the Boston area. The benefits would be localized. That is, there would be many neighborhoods in the study not benefited by the clean up. Hence, housing prices for the most part would not be expected to change and resulting general equilibrium complications would not arise.The benefits of clean up range from $3.6 million to $17.4 million over the thee sites. The benefits tend to be greatest for more expensive homes.
The NSF/EPA-funded study from 1992, “House Prices During Unwanted Facility Siting Decision Stages” by McClain develops a method for measuring some of the costs associated with siting a locally unwanted land use. This study will be limited to the impact of locally unwanted land uses on residential property values. Unwanted facilities are not a momentary phenomenon, nor do they suddenly appear. Their life cycle extends from pre-siting rumors to ongoing operations. Previous studies of disamenities have measured property values at only two points in time, once before an undesirable facility has been sited and once afterwards. In this study, the methodology has been explicitly designed to measure how the effects of the disamenity on residential property values evolve over the life cycle of the disamenity. A better understanding of the dynamics of disamenities, and if they change in nature or effect over time, will be gained.
The NSF/EPA-funded study from 1997, “Stigma of Environmental Damage on Residential Property Values” by Rausser notes that academic studies have shown that residential property values become lower as the distance to a hazardous waste site decreases. 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. The researchers present an economic model of hysteresis and use the hedonic price study after cleanup to test for stigma from environmental damage on residential property values.
Measuring External Effects of Solid Waste Management (EE0394) by Schmalensee et al. (1975)
attempts to identify and quantify the external, i.e., environmental effects of landfills. Such effects could include water, air, noise and visual pollution. The authors conclude that, “The technology of sanitary landfills is such that little if any water or air pollution would from a properly designed fill.” Noise and visual pollution are readily perceived by neighbors. As a result, a property value study will suffice to quantify those effects. The investigators perform a property value study in the vicinity of four Los Angeles County landfills. They find, “… a general lack of significant detrimental environmental effects. In the one case where truck noise … had a negative effect on property values, both proximity and view of the fill had positive effects due presumably to the anticipated transformation of the fill to a recreational site.” The authors conclude that the direct costs to the municipality all but equal the social costs. With only slight external costs, “… there does not appear to be a case for discouraging the use of such fills.”