Environmental hazards: The microgeography of land‐use negative externalities

Tsur Somerville and Jake Wetzel

Real Estate Economics, 2022, vol. 50, issue 2, 468-497

Abstract: The decisions on the siting of hazardous facilities and compensation for nearby landowners depend on an accurate estimation of the negative externalities these facilities place on proximate land uses, primarily residential properties. In this paper, we highlight the sensitivity of these estimates to the treatment of distance from the hazard and to the presence of other nearby externality generating land uses identified at a highly granular geographic level. We find that estimated spillovers are quite sensitive to highly localized treatment of other land uses and that naive parametric specifications yield misleading results. Unlike previous work, we find proximity to a major oil pipeline results in lower house prices: properties adjacent to a property with a pipeline easement transact for 2.2% ($C 15.8k) less and those one property further away 1.6% ($C 11k) less than more distant residential properties. These effects vary by the type of land use on which the pipeline easement lies. Difference‐in‐differences tests indicate that the price effects of proximity respond to information shocks that remind potential buyers of pipeline risks but not those shocks that merely remind them of the presence of the pipeline. However, the effects of an information shock, in this case a nearby spill on the pipeline, dissipate within 18 months.

Date: 2022
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https://doi.org/10.1111/1540-6229.12352

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