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Can Property Values Capture Changes in Environmental Health Risks? Evidence from a Stated Preference Study in Italy and the UK

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  • Dennis Guignet

    (National Center for Environmental Economics US Environmental Protection Agency)

  • Anna Alberini

    (Department of Agricultural and Resource Economics University of Maryland, and Fondazione Eni Enrico Mattei, Venice)

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    Abstract

    Hedonic property value models are often used to place a value on localized amenities and disamenities. In practice, however, results may be affected by (i) omitted variable bias and (ii) whether homebuyers and sellers are aware of, and respond to, the assumed environmental measure. In this paper we undertake an alternative stated preference (SP) approach that eliminates the potential for unobserved confounders and where the measure of environmental quality is explicitly presented to respondents. We examine how homeowners in the United Kingdom and Italy value mortality risk reductions by asking them to choose among hypothetical variants of their home that differ in terms of mortality risks from air pollution and price. To our knowledge this is the first stated preference study examining respondents’ willingness to pay for properties using a quantitative and clearly specified measure of health risks. We find that Italian homeowners hold a value of a statistical life (VSL) of about €6.4 million, but UK homeowners tend to hold a much lower VSL (€2.1 million). This may be due to the fact that respondents in the UK do not perceive air pollution where they live to be as threatening, and actually live in cities with relatively low air pollution levels. Exploiting part of our experimental design, we find that Italian homeowners value a reduction in the risk of dying from cancer more than from other causes, but UK respondents do not hold such a premium. We also find that those who face higher baseline risks, due to higher air pollution levels where they live, hold a higher VSL, especially in the UK. In both countries, the VSL is twice as large among individuals who perceive air pollution where they live as relatively high.

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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.67.

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    Date of creation: Jul 2013
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    Handle: RePEc:fem:femwpa:2013.67

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    Related research

    Keywords: Home Values; Air Pollution; Stated Preference; Vsl; Value of Statistical Life; Value of a Prevented Fatality; Health Risks; Cancer Premium;

    This paper has been announced in the following NEP Reports:

    References

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    1. Anna Alberini & Milan Šcasný, 2010. "Context and the VSL: Evidence from a Stated Preference Study in Italy and the Czech Republic," Working Papers 2010.66, Fondazione Eni Enrico Mattei.
    2. Olivier Chanel & Stephane Luchini, 2008. "Monetary Values for Air Pollution Risk of Death: A Contingent Valuation Survey," Working Papers halshs-00272776, HAL.
    3. Sudip Chattopadhyay, 1999. "Estimating the Demand for Air Quality: New Evidence Based on the Chicago Housing Market," Land Economics, University of Wisconsin Press, vol. 75(1), pages 22-38.
    4. Thomas Kniesner & W. Viscusi & James Ziliak, 2010. "Policy relevant heterogeneity in the value of statistical life: New evidence from panel data quantile regressions," Journal of Risk and Uncertainty, Springer, vol. 40(1), pages 15-31, February.
    5. Adamowicz, Wiktor & Dupont, Diane & Krupnick, Alan & Zhang, Jing, 2011. "Valuation of cancer and microbial disease risk reductions in municipal drinking water: An analysis of risk context using multiple valuation methods," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 213-226, March.
    6. Kenneth Y. Chay & Michael Greenstone, 2005. "Does Air Quality Matter? Evidence from the Housing Market," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 376-424, April.
    7. Alberini, Anna & Chiabai, Aline, 2007. "Urban environmental health and sensitive populations: How much are the Italians willing to pay to reduce their risks?," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 239-258, March.
    8. Ted Gayer & James T. Hamilton & W. Kip Viscusi, 2002. "The Market Value of Reducing Cancer Risk: Hedonic Housing Prices with Changing Information," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 266-289, October.
    9. Beat Hintermann & Anna Alberini & Anil Markandya, 2006. "Estimating the Value of Safety with Labor Market Data: Are the Results Trustworthy?," Working Papers 2006.119, Fondazione Eni Enrico Mattei.
    10. Anna Alberini & Alistair Hunt & Anil Markandya, 2006. "Willingness to Pay to Reduce Mortality Risks: Evidence from a Three-Country Contingent Valuation Study," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 33(2), pages 251-264, 02.
    11. Guignet, Dennis, 2012. "The impacts of pollution and exposure pathways on home values: A stated preference analysis," Ecological Economics, Elsevier, vol. 82(C), pages 53-63.
    12. Lucas W. Davis, 2004. "The Effect of Health Risk on Housing Values: Evidence from a Cancer Cluster," American Economic Review, American Economic Association, vol. 94(5), pages 1693-1704, December.
    13. Hallstrom, Daniel G. & Smith, V. Kerry, 2005. "Market responses to hurricanes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 541-561, November.
    14. Krupnick, Alan & Cropper, Maureen & Alberini, Anna & Heintzelman, Martin & Simon, Nathalie & O'Brien, Bernie & Goeree, Ron, 2000. "Age, Health, and the Willingness to Pay for Mortality Risk Reductions: A Contingent Valuation Survey of Ontario Residents," Discussion Papers dp-00-37, Resources For the Future.
    15. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2010. "The Value of a Statistical Life: Evidence from Panel Data," Center for Policy Research Working Papers 122, Center for Policy Research, Maxwell School, Syracuse University.
    16. Robert A. Simons & Kimberly Winson-Geideman, 2005. "Determining Market Perceptions on Contamination of Residential Property Buyers using Contingent Valuation Surveys," Journal of Real Estate Research, American Real Estate Society, vol. 27(2), pages 193-220.
    17. Robin R. Jenkins & Nicole Owens & Lanelle Bembenek Wiggins, 2001. "Valuing Reduced Risks To Children: The Case Of Bicycle Safety Helmets," Contemporary Economic Policy, Western Economic Association International, vol. 19(4), pages 397-408, October.
    18. Anna Alberini & Stefania Tonin & Margherita Turvani & Aline Chiabai, 2006. "Paying for Permanence: Public Preferences for Contaminated Site Cleanup," Working Papers 2006.113, Fondazione Eni Enrico Mattei.
    19. Takahiro Tsuge & Atsuo Kishimoto & Kenji Takeuchi, 2005. "A Choice Experiment Approach to the Valuation of Mortality," Journal of Risk and Uncertainty, Springer, vol. 31(1), pages 73-95, July.
    20. Dietrich Earnhart, 2001. "Combining Revealed and Stated Preference Methods to Value Environmental Amenities at Residential Locations," Land Economics, University of Wisconsin Press, vol. 77(1), pages 12-29.
    21. George Houtven & Melonie Sullivan & Chris Dockins, 2008. "Cancer premiums and latency effects: A risk tradeoff approach for valuing reductions in fatal cancer risks," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 179-199, April.
    22. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    23. Earnhart, Dietrich, 2002. "Combining Revealed and Stated Data to Examine Housing Decisions Using Discrete Choice Analysis," Journal of Urban Economics, Elsevier, vol. 51(1), pages 143-169, January.
    24. Portney, Paul R., 1981. "Housing prices, health effects, and valuing reductions in risk of death," Journal of Environmental Economics and Management, Elsevier, vol. 8(1), pages 72-78, March.
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