Hedonic Price Functions and Spatial Dependence: Implications for the Demand for Urban Air Quality
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In 1967, Ronald Ridker and John Henning conducted the first study that linked air pollution to property values. Using census level data, they found that, for St. Louis, air pollution had a negative and significant affect on median housing prices. Research since has verified, modified, and redefined the economic interpretation of this relationship. In summarizing twenty-five years of property value/air pollution literature, Smith and Huang (1993, 1995) reported that approximately 74 percent of the studies found at least one significant air pollution variable. Even allowing for a publication bias toward significant findings, there seems to be a preponderance of evidence that air pollution is negatively related to housing prices. This is important because it reveals information about the willingness to pay for air quality — a nonmarket commodity. Moreover, to the extent that policymakers use the results from air pollution/property value studies, the findings are socially relevant. The South Coast Air Quality Management District, for example, uses a property value based model in formulating their Air Quality Management Plans.
KeywordsHousing Price Census Tract Spatial Dependence Total Suspended Particulate Hedonic Price Function
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