Property Values and the Benefits of Environmental Improvements: Theory and Measurement
Files
Description
Attempts to measure the benefits of environmental improvements encounter a problem common in economics: the difficulty of determining the values of goods and services not directly traded in markets. Although consumers are thought to value the environment highly (a term used generically to include air, water, land, visual aesthetics, and so on), there are no directly observable market prices which can conveniently be interpreted as the consumer’s marginal willingness to pay for environmental attributes. Four approaches have been employed to overcome this problem: Health studies, which seek to determine the relationship between improvements in the environment and human health and then place a dollar value on these health improvements; Cost studies, which seek to ascertain the extra costs created by environmental disamenities, such as the physical damage to buildings caused by polluted air; Wage rate studies, which seek to determine the wage differences among urban areas that are necessary to compensate a given quality of labor for urban disamenities; and Property value studies, which seek to determine the relationship between property values and environmental amenities in order to predict the change in aggregate property values (interpreted as willingness to pay) resulting from an environmental improvement. This paper is limited to a discussion of what can be learned about the benefits of environmental improvements from property value studies. The question of whether the benefit measure derived from this approach should be added in part or in while to the benefits derived from the other approaches is left unanswered. In section 2 the essential issues involved in property value studies are explored in detail. Section 3 presents a nontechnical version of a model that can be used to determine property values in an urban area. In section 4 the model is used to analyze and at least partially answer the questions raised in section 2. In the process, a new procedure is suggested for measuring the benefits of environmental improvements. In section 5 a numerical illustration using this procedure is undertaken for St. Louis and compared with the estimates obtained by other methods.
Source Publication
Public Economics and the Quality of Life
Source Editors/Authors
Lowdon Wingo, Alan Evans
Publication Date
1977
Recommended Citation
Polinsky, A. Mitchell and Rubinfeld, Daniel L., "Property Values and the Benefits of Environmental Improvements: Theory and Measurement" (1977). Faculty Chapters. 1878.
https://gretchen.law.nyu.edu/fac-chapt/1878
