Demand for Environmental Quality: A Spatial Hedonic Analysis

Abstract

We first estimate the relationship between house prices and environmental disamenities using spatial statistics, confirming that nearby point-source pollutants depress house price. We then calculate implicit prices of environmental quality and related characteristics from the house price hedonics to estimate a demand curve for environmental quality, finding a price elasticity of demand of -0.12. We find evidence of significant spatial effects in both the hedonic and demand estimations. We find that environmental quality and school quality are purchased together (eta=-0.80), environmental quality and house size are substitutes (eta=0.91), and environmental quality and lot size are not related goods.

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