The Effect of Health Risk on Housing Values: Evidence from a Cancer Cluster

Posted: 9 Jun 2011

See all articles by Lucas W. Davis

Lucas W. Davis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: 2004

Abstract

This paper measures the impact of an outbreak of pediatric leukemia on local housing values. A model of location choice is used to describe conditions under which the gradient of the hedonic price function with respect to pediatric leukemia risk is equal to household marginal willingness to pay to avoid risk. This equalizing differential is estimated using property-level sales records from a county in Nevada where residents recently experienced a severe increase in pediatric leukemia. Housing prices are compared before and after the increase with a nearby county acting as a control group. The variation in health risk over time makes it possible to control for unobserved differences across locations. In addition, because many houses were sold repeatedly during the sample period it is possible to control for property-specific heterogeneity. The results indicate that housing values decreased 15.6 percent during the period of maximum risk. Results are similar for different measures of risk and across houses of different sizes. Using lifetime estimates of risk derived from a Bayesian learning process the results imply that the statistical value of pediatric leukemia is $5.6 million. These estimates provide some of the first market-based estimates of the value of health for children.

Keywords: hedonic pricing, environmental health risk, statistical value of life

JEL Classification: D62, H23, Q51

Suggested Citation

Davis, Lucas W., The Effect of Health Risk on Housing Values: Evidence from a Cancer Cluster (2004). American Economic Review, Vol. 94, No. 5, 2004, Available at SSRN: https://ssrn.com/abstract=1860163

Lucas W. Davis (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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