Valuing externalities of outdoor advertising in an urban setting – the case of Warsaw

Abstract

Outdoor advertising (OA) produces externalities, such as access to information and visual pollution, that have to be considered in cityscape planning. We propose a theoretical model of demand for OA that considers positive and negative externalities, as well as consumers income and advertising space they can rent. We then present the results of a stated preference study aimed at estimating the value that people attach to the reductions of OA in Warsaw, the capital of Poland. We considered two types of OA mediums: free-standing ads and on-building ads, alongside five levels of advertising reduction. We find that inhabitants of Warsaw prefer regulating and limiting the amount of OA and we quantify their willingness to pay for such a policy. In total, the people of Warsaw were willing to pay from 1.7 to 4.1 million EUR per year for limiting the number of free-standing ads and 5.5–9.3 million EUR per year for limiting of advertising on buildings, depending on the scope of reductions. The results are used for validating the theoretical model. They also serve as input for a benefit-cost analysis of optimal regulation and provide a basis for designing market-based instruments (e.g., Pigouvian tax) to adjust the amount of advertising to socially optimal level. Overall, our study demonstrates how stated preference methods can be used for informing urban landscape policies and adds to the ongoing debate surrounding OA.