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The Impact of Imperfect Information on the Transactions of Contaminated Properties

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  • Jeffrey Zabel

Abstract

The well documented existence of hundreds of thousands of contaminated properties is a major environmental problem in the United States. Recently, there has been a lot of discussion in the academic literature and political arena about the benefits of the redevelopment of contaminated sites. Given that there may be positive net benefits, why is it that these sites have not been clean up and redeveloped? The focus of this paper is analyzing how incomplete information can deter the transactions of contaminated sites. First, a model of contaminated property transactions is developed. Second, the concept of incomplete information is defined and applied to this model. It is then shown how incomplete information can deter socially optimal transactions of contaminated properties. Third, a framework for empirically estimating the impact of incomplete information on property transactions is developed. Fourth, a framework for measuring the associated welfare loss from the reduced rate of property transactions is established. Fifth, recommendations about how to proceed in this relatively new area of research are provided, particularly with respect to estimating the empirical model.

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File URL: http://yosemite.epa.gov/ee/epa/eed.nsf/WPNumber/2007-03/$File/2007-03.PDF
File Function: First version, 2007
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Bibliographic Info

Paper provided by National Center for Environmental Economics, U.S. Environmental Protection Agency in its series NCEE Working Paper Series with number 200703.

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Length: 46 pages
Date of creation: Jan 2007
Date of revision: Jan 2007
Handle: RePEc:nev:wpaper:wp200703

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Related research

Keywords: land cleanup; Reuse; brownfields; asymmetric information; market for lemons;

References

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  1. Christopher De Sousa, 2004. "The greening of brownfields in American cities," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 47(4), pages 579-600.
  2. Herrin, William E. & Knight, John R. & Sirmans, C.F., 2004. "Price cutting behavior in residential markets," Journal of Housing Economics, Elsevier, vol. 13(3), pages 195-207, September.
  3. Anupam Nanda, 2005. "Property Condition Disclosure Law: Does 'Seller Tell All' Matter in Property Values?," Working papers 2005-47, University of Connecticut, Department of Economics, revised Jul 2006.
  4. Arthur Sementelli & Robert A. Simons, 1997. "Regulation of Leaking Underground Storage Tanks: Policy Enforcement and Unintended Consequences," Economic Development Quarterly, , vol. 11(3), pages 236-248, August.
  5. Hilary Sigman, 2006. "Environmental Liability and Redevelopment of Old Industrial Land," Departmental Working Papers 200609, Rutgers University, Department of Economics.
  6. Alberini, Anna & Longo, Alberto & Tonin, Stefania & Trombetta, Francesco & Turvani, Margherita, 2002. "The Role Of Liability, Regulation And Economic Incentives In Brownfield Remediation And Redevelopment: Evidence From Surveys Of Developers," Working Papers 28582, University of Maryland, Department of Agricultural and Resource Economics.
  7. Kris Wernstedt, 2004. "Overview of Existing Studies on Community Impacts of Land Reuse," NCEE Working Paper Series 200406, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2004.
  8. Miceli, Thomas J & Pancak, Katherine A & Sirmans, C F, 1996. "An Economic Analysis of Lead Paint Laws," The Journal of Real Estate Finance and Economics, Springer, vol. 12(1), pages 59-75, January.
  9. Nijkamp, Peter & Rodenburg, Caroline A. & Wagtendonk, Alfred J., 2002. "Success factors for sustainable urban brownfield development: A comparative case study approach to polluted sites," Ecological Economics, Elsevier, vol. 40(2), pages 235-252, February.
  10. McGrath, Daniel T., 2000. "Urban Industrial Land Redevelopment and Contamination Risk," Journal of Urban Economics, Elsevier, vol. 47(3), pages 414-442, May.
  11. Jeffrey Fisher & Dean Gatzlaff & David Geltner & Donald Haurin, 2004. "An Analysis of the Determinants of Transaction Frequency of Institutional Commercial Real Estate Investment Property," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(2), pages 239-264, 06.
  12. Thomas O. Jackson, 2002. "Environmental Contamination and Industrial Real Estate Prices," Journal of Real Estate Research, American Real Estate Society, vol. 23(1/2), pages 179-200.
  13. Kathleen Segerson, 1994. "Property Transfers and Environmental Pollution: Incentive Effects of Alternative Policies," Land Economics, University of Wisconsin Press, vol. 70(3), pages 261-272.
  14. Kris Wernstedt & Peter B. Meyer & Anna Alberini, 2006. "Attracting private investment to contaminated properties: The value of public interventions," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(2), pages 247-369.
  15. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  16. Boyd, James & Harrington, Winston & Macauley, Molly K, 1996. "The Effects of Environmental Liability on Industrial Real Estate Development," The Journal of Real Estate Finance and Economics, Springer, vol. 12(1), pages 37-58, January.
  17. Segerson Kathleen, 1993. "Liability Transfers: An Economic Assessment of Buyer and Lender Liability," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages S46-S63, July.
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