The Traffic Noise Externality: Costs, Incidence and Policy Implications

More than 42 million Americans are exposed to medium or high levels of traffic noise. Despite its potentially large toll and unequal distribution, the economic costs, incidence, and policy implications of traffic noise have received limited attention in economics. We quantify the aggregate economic burden of this externality and its distribution across demographic groups by estimating homebuyers' willingness to pay for quieter environments. Using quasi-experimental variation from the construction of noise barriers, we find that reduced traffic noise exposure leads to significant increases in house prices, implying that buyers are willing to pay a substantial premium for each decibel of noise reduction. In the five years before construction, we detect no differential pre-trends in prices between treated and control properties. Following construction, we observe an immediate and largely permanent 6.8% increase in prices within 100 meters, with smaller gains at greater distances. Information on each barrier's noise attenuation allows us to recover the willingness to pay per decibel of traffic noise. We calculate the aggregate economic cost of traffic noise at $110 billion nationwide. The economic burden is disproportionately borne by lower income and minority households, suggesting that the externality is regressive. The cost varies widely across cities, reflecting differences in noise levels, property values and population density. Based on our estimates, the socially efficient Pigouvian tax amounts to $974 per vehicle. A broad shift to electric vehicles -- which are quieter than traditional vehicles -- could yield noise reduction benefits of $77.3 billion, concentrated among low-income families in dense urban areas.