Directional Heterogeneity in Distance Profiles in Hedonic Property Value Models

Failure to allow for directional heterogeneity can obscure otherwise statistically significant distance effects in hedonic property value models. If ambient pollution data are unavailable, researchers often rely upon distance from a point source of pollution as a proxy for ambient environmental quality. However, damages from all types of point-source disamenities may exhibit directional heterogeneity. We generalize conventional distance models to allow for directional effects and show that commonly used linear and quadratic spatial trend variables capture directional heterogeneity in a manner that has not previously been recognized. Appropriate spatial models can also inform the social planner’s problem of optimal allocation of source reduction across polluters. When independently calibrated tranport functions are not available, individual properties can be viewed as ambient receptor sites. Hedonic models can yield estimates of the product of marginal social damages from ambient concentrations and the change in ambient concentration per unit of emissions from each source. Optimal emissions depend upon the spatial distribution of all affected properties relative to each source, the parameters of the hedonic model, and marginal abatement costs.