Hedonic Price Estimates of Lake Water Quality: Valued Attribute, Instrumental Variables, and Ecological-Economic Benefits

Moore, Michael R.; Doubek, Jonathan P.; Xu, Hui; Cardinale, Bradley J.

doi:10.1016/j.ecolecon.2020.106692

Title: Hedonic Price Estimates of Lake Water Quality: Valued Attribute, Instrumental Variables, and Ecological-Economic Benefits

Journal Article · Thu Oct 01 00:00:00 EDT 2020 · Ecological Economics

DOI:https://doi.org/10.1016/j.ecolecon.2020.106692· OSTI ID:1787639

Moore, Michael R. ^[1]; Doubek, Jonathan P. ^[2]; Xu, Hui ^[3]; Cardinale, Bradley J. ^[1]

Univ. of Michigan, Ann Arbor, MI (United States)
Lake Superior State University, Sault Ste. Marie, MI (United States)
Argonne National Lab. (ANL), Argonne, IL (United States)

We estimate the effect of lake water quality on residential housing prices using cross-sectional data on water clarity from 113 lakes across the United States. An instrumental-variables approach is developed to address potential endogeneity bias in the water-clarity variable. Three lake-based physical variables serve as instrumental variables: total nitrogen concentration in lake water, total phosphorus concentration in lake water, and water temperature near the lake surface. The econometric results include three methodological findings: the instruments are valid and strong; the ordinary-least-squares estimate of the coefficient on the water-clarity variable is unbiased; and water clarity is the attribute of water quality valued in the housing market. The estimated water-clarity effect shows that a one-tenth of a meter change in water clarity leads to a one-percent change in housing price, or an elasticity of 0.20 at mean clarity. Coupling this effect with estimates of an ecological production function, a lake-specific benefit index is developed that shows the effect on housing values of bringing lakes into compliance with the US Environmental Protection Agency's regional recommendations for phosphorous concentration in lake waters.

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Research Organization:: Argonne National Laboratory (ANL), Argonne, IL (United States)

Sponsoring Organization:: USDOE; National Science Foundation (NSF)

Grant/Contract Number:: AC02-06CH11357

OSTI ID:: 1787639

Journal Information:: Ecological Economics, Vol. 176; ISSN 0921-8009

Publisher:: ElsevierCopyright Statement

Country of Publication:: United States

Language:: English

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