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    Hedonic Price Estimates of Lake Water Quality: Valued Attribute, Instrumental Variables, and Ecological-Economic Benefits2020

    CARDINALE B.J., DOUBEK J.P., HU H., MOORE R.M.Journaux et Revues (scientifiques)

    eutrophisation, prix hédoniques

    Ecological Economics
    Volume 176, October 2020, 106692

    • Water clarity is the attribute of lake water quality that homebuyers value.

    • We apply an econometric method to evaluate endogeneity of the water clarity variable.

    • Water clarity exerts a positive effect on housing prices at U.S. inland lakes.

    • The study develops a coupled ecological-economic modeling framework.

    • We estimate the benefits of meeting recommended phosphorus standards in U.S. lakes.

    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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