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The Effects of Aquatic Invasive Species on Property Values: Evidence from a Quasi-Random Experiment

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  • Horsch, Eric J.
  • Lewis, David J.
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    Abstract

    The invasion of ecosystems by non-native species is widely considered to be a principal threat to global biological diversity, yet the social costs of invasive species are not well-understood. The purpose of this study is to estimate a hedonic model of lakeshore property values to quantify the effects of a common aquatic invasive species – Eurasian Watermilfoil – on property values across an extensive system of over 170 lakes in the northern forest region of Wisconsin. In addition to providing empirical evidence as to the potential benefits from reducing the spread of invasive species, this paper also develops a quasi-experimental methodology to identify the effects of changes in endogenous neighborhood amenities within the commonly estimated hedonic framework. In our application, a lake is more likely to be invaded with Milfoil if it is more popular with recreational boaters. Therefore, since lakes popular with recreational boaters are also likely to be popular with potential residents, and since many aspects of a lake’s amenities may be difficult to quantify, the likelihood of Milfoil invasions is endogenous in a hedonic price equation. Our identification strategy is based on a spatial difference-in-difference specification, and uses fixed effects to control for observed and unobserved neighborhood effects, while exploiting changes in the Milfoil status of several lakes during the time period of our data. Results indicate that lakes invaded with Milfoil experienced an average 13% decrease in land values after invasion. The Milfoil results are robust across linear and non-linear specifications.

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    Bibliographic Info

    Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6199.

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    Date of creation: 2008
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    Handle: RePEc:ags:aaea08:6199

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    Keywords: Land Economics/Use; Resource /Energy Economics and Policy;

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