Hedonic Property Value Studies of Transportation Noise: Aircraft and Road Traffic

Noise from aircraft and road traffic is an example of an uncompensated external cost or externality. A negative externality is defined as a by-product of production or consumption activities that adversely affects third parties not directly involved in the associated market transactions. Environmental noises that exceed ambient levels can disturb valuable activities such as conversation, TV viewing, leisure, work or sleep, and in severe cases can have adverse effects on long-term health and thereby reduce productivity and quality of life. The third parties can take defensive steps to avoid the physical effects of noise, such as screening their property using fencing or vegetation, installing air conditioning and insulation, or moving to a new residence. A role of economics is to help determine the socially optimal amount of noise and the appropriate mixture of source abatement, operational changes, and housing adjustments (relocation, zoning, soundproofing). Recent legislative changes, such as the European Commission’s “Green Paper on Future Noise Policy” (EC 1996) and Directive 2002/49/EC on noise assessment (EC 2002), have focused attention on noise valuation as part of benefit-cost analyses of mitigation projects. The information from valuation studies also can be used for cost-effective policy design, including the choice between regulations, noise pollution taxes, and tradeable permits. The main alternatives to hedonic valuation are survey methods that ask respondents to state their willingness to pay for environmental improvements, including the contingent valuation method, contingent ranking, conjoint analysis, and other SP models. These methods are still relatively new, but a number of survey-based studies of noise valuation are available. While the purpose of this chapter is to critically review recent studies using hedonic valuation methods, it is useful to include results from SP studies. An examination of survey-based results also serves to illustrate the strengths and weaknesses of the HP method. The next two sections of this chapter provide a brief history of hedonic valuation of noise and a topical outline. This is followed by a five-part discussion of issues that confront empirical researchers in this area.