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Examining the Spatial Distribution of Externalities: Freight Rail Traffic and Home Values in Los Angeles

By Michael Futch

Abstract

This paper measures the impact of infrastructure expansion on local home values and examines the persistence of that impact over distance. Specifically, I exploit a natural experiment in which rail traffic from the Los Angeles seaport, one of the busiest in the country, was permanently redirected from several tracks to a central line, termed the Alameda Corridor. I link a rich, repeat-sale housing dataset to plausibly exogenous changes in local rail traffic to estimate these effects, controlling for local price trends using a Case-Shiller style housing index. Using the actual traffic changes the result is an estimated $3500 decrease in average home value where traffic increased and a $1300 increase in average home value where rail traffic was reduced. The welfare impact of concentrating a negative externality on a smaller population should depend on the convexity of the cost function, but I find evidence that suggests the marginal cost is symmetric for winners and losers. Instead, the total welfare impact hinges on the efficiency gains achieved by relocating the traffic from circuitous routes to the more direct Alameda Corridor, thereby affecting fewer homeowners. While the net gains are minimal, the re-routing of traffic resulted in a transfer of housing wealth of approximately $200 million

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.371.652
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