Paper Number: 2014-01

Document Date: 01/2014

Author(s): Dennis Guignet

Subject Area(s): Economic Impacts; Water Pollution; Air Pollution

JEL Classification: Welfare Economics: Externalities; Health: Government Policy; Regulations; Public Health; Environmental Economics: Valuation of Environmental Effects; Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling; Household Analysis

Keywords: housing market; property transactions; discrete time duration model; hedonic analysis; leaking underground storage tanks; groundwater contamination

Abstract: Numerous nonmarket valuation studies have examined the impacts of environmental commodities on house prices, but little attention has been given to how shifts in these commodities affect the occurrence of home transactions, and the resulting welfare implications. Using a novel theoretical framework and an empirical analysis of homes impacted by petroleum releases from underground storage tanks, this paper demonstrates that changes in environmental quality can significantly impact a household’s decision to sell their home, and that this change in behavior has important implications towards theoretical welfare measures and empirical estimates. A discrete time duration model is estimated using a panel of single-family homes from 2000 to 2007. The dependent variable is the annual occurrence of a sale at each individual home. I find that contamination and cleanup activities in close proximity significantly impact the probability that a home is sold. Most striking is that this probability is reduced by about 50% during ongoing cleanup. This finding is most pronounced among lower quality homes and where an exposure pathway is present.

This paper is part of the Environmental Economics Working Paper Series.

• Working Paper: To Sell or Not To Sell: The Impacts of Pollution on Home Transactions (PDF)(58 pp, 499 K, 01/2014)