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

Michael R. Moore, Jonathan P. Doubek, Hui Xu and Bradley J. Cardinale

Ecological Economics, 2020, vol. 176, issue C

Abstract: 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.

Keywords: Residential Housing Market; Instrumental Variables Regression; Ecological-Economic Modeling; National Phosphorus Recommendations (search for similar items in EconPapers)
JEL-codes: Q51 Q53 Q57 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0921800919311012
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:176:y:2020:i:c:s0921800919311012

DOI: 10.1016/j.ecolecon.2020.106692

Access Statistics for this article

Ecological Economics is currently edited by C. J. Cleveland

More articles in Ecological Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().