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Hedonic Pricing For A Cost Benefit Analysis Of A Public Water Supply Scheme

  • Coelli, Tim J.
  • Lloyd-Smith, J.
  • Morrison, D.
  • Thomas, J.

During the 1950s and 1960s pipelines were built to provide water to many farms in the central wheatbelt of Western Australia using public funds. The resulting network has become known as the Comprehensive Water Supply Scheme. The expansion of the Scheme is currently under consideration. An ex ante cost benefit analysis of the proposed expansion is undertaken. An earlier analysis which focused on the benefits of the reduced necessity to cart water was rejected by farmer groups because of the inability of the analysis to properly account for domestic benefits and risk reduction. To overcome these criticisms a hedonic model of farm land values is formulated in which the independent variables are the characteristics of a property, including whether or not the property is connected to the Scheme. The implicit marginal price (or value) of Scheme connection is then derived. An advantage of this technique is that it estimates the value that the farmers allocate to Scheme water in the market place. The conclusion is that the benefits of Scheme water are considerably less than the costs.

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File URL: http://purl.umn.edu/22924
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Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural Economics.

Volume (Year): 35 (1991)
Issue (Month): 01 (April)
Pages:

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Handle: RePEc:ags:ajaeau:22924
Contact details of provider: Postal: AARES Central Office Manager, Crawford School of Public Policy, ANU, Canberra ACT 0200
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  1. Miranowski, John & Hammes, B., 1984. "Implicit Prices of Soil Characteristics for Farmland in Iowa," Staff General Research Papers 10706, Iowa State University, Department of Economics.
  2. James G. MacKinnon, 1983. "Model Specification Tests Against Non-Nested Alternatives," Working Papers 573, Queen's University, Department of Economics.
  3. Phil Graves & James C. Murdoch & Mark A. Thayer & Don Waldman, 1988. "The Robustness of Hedonic Price Estimation: Urban Air Quality," Land Economics, University of Wisconsin Press, vol. 64(3), pages 220-233.
  4. Halvorsen, Robert & Pollakowski, Henry O., 1981. "Choice of functional form for hedonic price equations," Journal of Urban Economics, Elsevier, vol. 10(1), pages 37-49, July.
  5. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
  6. Blase, Melvin G. & Hesemann, Clyde, 1973. "Farm Land Prices: Explainable Or Illogical?," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 5(01), July.
  7. David L. Chicoine, 1981. "Farmland Values at the Urban Fringe: An Analysis of Sale Prices," Land Economics, University of Wisconsin Press, vol. 57(3), pages 353-362.
  8. David A. King & J. A. Sinden, 1988. "Influence of Soil Conservation on Farm Land Values," Land Economics, University of Wisconsin Press, vol. 64(3), pages 242-255.
  9. Cropper, Maureen L & Deck, Leland B & McConnell, Kenneth E, 1988. "On the Choice of Functional Form for Hedonic Price Functions," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 668-75, November.
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