Neighborhood Effects and Compensation for Property Value Diminution

Abstract

This paper analyzes the legal issues surrounding defendants' liability for property value diminution caused by stigma from environmental contamination. The courts, law review articles, and public policy analyses are in disagreement over how to handle stigma damages. This paper argues that a reasonable risk of contamination is not required for a nuisance claim if community effects, which were caused by the contamination, are present. The authors then turn to issues regarding the level of damages and propose a methodology for measuring compensation that is based on a guaranteed sales price. This methodology is applied to the RSR smelter in Dallas, Texas.