Three essays on non-market valuation using hedonic property and contingent valuation techniques

Abstract

Non-market valuation is commonly used to quantify the value of environmental amenities and hazards. The two main methods of non-market valuation are stated and revealed preference. The studies herein examine the nonmarket values of forest fires and wind power using stated and revealed preference methods. The first essay investigates the construct validity of Ordinary Least Squares as a method for estimating hedonic price functions. The hedonic property method is based on the utility theoretic premise that house prices are a function of both structural and environmental attributes. Because environmental attributes are location specific, the estimated hedonic price function may have issues with spatial dependence. The first essay tests for spatial dependence and finds that estimates of implicit prices using OLS, while technically biased, do not exhibit an economically significant difference from spatially corrected estimates. The second essay applies the hedonic property method to a larger dataset using OLS to quantify both the immediate and long-term effects of forest fires on house prices in Southern California. Forest fires have a statistically significant and negative immediate effect on house prices. After a first fire, house prices continue to decrease over time, while after a second fire, house prices begin to recover. The results indicate that homebuyers in high-risk areas may not be fully aware of the effects of short and long term fire risks. The final essay applies the contingent valuation technique to the results of a dichotomous-choice survey. The survey investigates Massachusetts residents' willingness to pay to forego and willingness to accept to allow a proposed wind park. Although the survey was formulated assuming that the majority of respondents would be willing to pay to forego the wind park, the WTP results indicate that respondents are willing to pay to $193 a year to obtain the wind park, and the WTA results indicate that respondents are willing to pay $35 a year to obtain the wind park. Each essay applies a particular type of non-market valuation technique and investigates the methodology and the policy implications of the application.