Estimating Water Quality Benefits with Revealed Preference

A long literature in economics considers the impacts of environmental conditions on housing markets. When applied to water pollution, hedonic property models suggest that willingness to pay for water quality improvement is small and tends toward zero beyond 2-3 kilometers from polluted water. This result is inconsistent with the recreation demand literature, which suggests that individuals value water quality at recreation sites even at significant distance. Seeking to reconcile these two results, we adapt a more comprehensive approach to valuing water quality in three U.S. coastal areas with active housing markets, rich aquatic recreation opportunities, and important pollution challenges: Puget Sound, Long Island Sound, and the Texas Gulf Coast. We provide new estimates of the value of water quality in these three urban coastal regions, and we further develop a promising revealed-preference approach to valuing water quality at large spatial scale. Toward this latter contribution, we test for whether and how the extent of the market for local amenity values and regional recreational improvements varies across the study regions, we distinguish between the value of smaller local waterbodies and larger coastal recreational waterbodies, and we consider whether the value of water pollution control capitalizes differentially with property markets’ demographic and socioeconomic characteristics.