Location: 368A Heady Hall

Description: Sheila Olmstead
Professor of Public Affairs in the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin
"The Value of Water Quality: Separating Amenity and Recreational Benefits"

Abstract: Hedonic property studies that value water quality improvements generally focus on waterfront homes, or those very close to affected water bodies. Estimated marginal willingness to pay (MWTP) for pollution reduction in these studies is typically small and drops sharply with distance from the water body. One challenge with the hedonic approach is that it is unclear what MWTP estimates capture. Unlike in the case of air pollution, health benefits from ambient water quality improvements are unlikely to be a significant share of estimated MWTP. Existing estimates likely combine primarily amenity benefits of water pollution reductions and recreational benefits. While amenity benefits may be highly localized, as prior studies have shown, recreational benefits may not be, and prior hedonic work may have failed to capture the potentially significant influence of recreation on MWTP for water quality improvements. Using the case of nutrient pollution reductions in Tampa Bay, Florida, we estimate a two-stage model that combines a random-utility recreational demand model with a hedonic housing model, allowing households to optimize over regional aquatic recreation opportunities (influenced by pollution in recreational waters), as well as local ambient water quality very close to homes. Preliminary results indicate that Tampa homeowners exhibit significant MWTP for both improvements in local ambient water quality, and improvements in regional recreational waters.

Contact Person: Wendong Zhang