What are the Welfare Costs of Shoreline Loss? Housing Market Evidence from a Discontinuity Matching Design

Abstract

This paper uses housing market data to estimate the welfare costs of shoreline loss along coastal beaches in Florida. I develop a forward-looking structural model of a housing market in which a time-variant housing characteristic (beach width) follows a Markov process. I use this model to provide an exact welfare interpretation for the coefficients from three empirical research designs: (1) a repeat-sales panel regression of housing prices on beach width; (2) a differences-in-differences approach based on sharp changes in beach width caused by beach nourishment projects; and (3) a new "discontinuity matching" research design that exploits capitalized housing price differentials created by predictable changes in future beach width. Using a unique panel dataset on housing sales, beach width survey measurements, and the timing of 204 beach nourishment projects along 300 miles of Florida's coastline, I then use each of these research designs to estimate homeowners' willingness to pay for an extra foot of sand. In contrast to previous work, I find that changes in beach width have little impact on housing prices, except possibly at very eroded beaches. The results imply that the welfare costs of sea level rise may be low up to a threshold, and then increase sharply.

Keywords: hedonic models, climate change, shoreline loss, sea level rise, discontinuity matching

JEL Classification: Q51, R0, C14