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Seminar: Learning in a Hedonic Framework: Valuing Brownfield Remediation

Date(s): February 19, 2014, 1:00-2:30pm

Location: Room 4128, EPA West Building, 1301 Constitution Ave., NW, Washington, DC

Contact: Carl Pasurka, 202-566-2275

Presenter(s): Lala Ma (Department of Economics, Duke University)

Description: In the absence of prices for environmental amenities, hedonic property value models have been widely used as a revealed-preference approach for measuring the values individuals place on non-marketed goods and policies that affect changes to those goods. Recovering unbiased estimates of the Marginal Willingness to Pay (MWTP) requires that prices in the pre-policy period should represent a valid baseline to which post-policy prices can be compared. However, this is likely to be complicated when substantial information about the amenity is provided to agents before a policy is implemented. Using brownfield remediation as an application, this paper considers two sources of distortions in the valuation of non-marketed goods - an expectations bias and a learning bias. If consumers suspect that cleanup of a brownfield is likely before it is cleaned (expectation) or gain new information about the severity of the brownfield contamination (learning), then baseline period prices need to be adjusted to account for these potential distortions to the MWTP estimate. To address this, I collect a new data set on brownfield contamination information over time from Massachusetts, and recover hedonic values from a dynamic neighborhood choice framework that allows agents to learn about brownfield hazards in a Bayesian fashion. I find a MWTP estimate of $888.38 per unit of site contamination when accounting for learning and forward-looking behavior, which is more than double the simple hedonic estimate. Furthermore, I calculate the average flow value of information provided by a site contamination assessment to be $894.37.

Seminar Category: Environmental Economics