Can Property Values Capture Changes in Environmental Health Risks? Evidence from a Stated Preference Study in Italy and the UK

40 Pages Posted: 30 Aug 2013

See all articles by Dennis Guignet

Dennis Guignet

Government of the United States of America - National Center for Environmental Economics; University of Maryland

Anna Alberini

University of Maryland - Department of Agricultural & Resource Economics

Date Written: August 29, 2013

Abstract

Hedonic property value models are often used to place a value on localized amenities and disamenities. In practice, however, results may be affected by (i) omitted variable bias and (ii) whether homebuyers and sellers are aware of, and respond to, the assumed environmental measure. In this paper we undertake an alternative stated preference (SP) approach that eliminates the potential for unobserved confounders and where the measure of environmental quality is explicitly presented to respondents. We examine how homeowners in the United Kingdom and Italy value mortality risk reductions by asking them to choose among hypothetical variants of their home that differ in terms of mortality risks from air pollution and price. To our knowledge this is the first stated preference study examining respondents’ willingness to pay for properties using a quantitative and clearly specified measure of health risks. We find that Italian homeowners hold a value of a statistical life (VSL) of about €6.4 million, but UK homeowners tend to hold a much lower VSL (€2.1 million). This may be due to the fact that respondents in the UK do not perceive air pollution where they live to be as threatening, and actually live in cities with relatively low air pollution levels. Exploiting part of our experimental design, we find that Italian homeowners value a reduction in the risk of dying from cancer more than from other causes, but UK respondents do not hold such a premium. We also find that those who face higher baseline risks, due to higher air pollution levels where they live, hold a higher VSL, especially in the UK. In both countries, the VSL is twice as large among individuals who perceive air pollution where they live as relatively high.

Keywords: Home Values, Air Pollution, Stated Preference, VSL, Value of Statistical Life, Value of a Prevented Fatality, Health Risks, Cancer Premium

JEL Classification: I18, J17, K32, Q51, Q53

Suggested Citation

Guignet, Dennis and Alberini, Anna, Can Property Values Capture Changes in Environmental Health Risks? Evidence from a Stated Preference Study in Italy and the UK (August 29, 2013). FEEM Working Paper No. 67.2013. Available at SSRN: https://ssrn.com/abstract=2317904 or http://dx.doi.org/10.2139/ssrn.2317904

Dennis Guignet

Government of the United States of America - National Center for Environmental Economics ( email )

Washington, DC 20460
United States

University of Maryland ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

Anna Alberini (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States
301-405-1267 (Phone)
301-314-9091 (Fax)

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