The impacts of pollution and exposure pathways on home values: A stated preference analysis

Abstract

Hedonic property value methods are an attractive non-market valuation technique. In practice, however, researchers are often forced to make untested assumptions regarding the public's perceptions of the environmental commodity being studied. Stated preference methods offer an opportunity to examine how home values are affected when researchers know exactly what is being valued. A stated preference study is conducted to investigate how people value environmental quality, by measuring impacts on home values from a leaking underground storage tank (LUST). The study incorporates two experimental treatments, expressing environmental risks in terms of (i) the presence of an exposure pathway, and (ii) pollution concentrations. This mimics information provided to Maryland households whose groundwater is actually impacted by a LUST.The questionnaire is administered to a convenience sample of Maryland residents. Within sample comparisons of the experimental treatments reveal that even when the groundwater at a home is not contaminated, respondents believe home prices decrease 18% to 24%. Prices decrease further once pollution levels exceed the regulatory standard, and an exposure pathway is present. Respondents seem capable of interpreting pollution information, and believe prices are impacted in ways consistent with economic theory. Future research to further bridge the gap between methodologies is discussed.