Location Efficient Mortgages: Is the Rationale Sound?

Location efficient mortgages (LEM) programs are an increasingly popular approach to combating urban sprawl. LEMs allow families who want to live in densely-populated, transit-rich communities to obtain larger mortgages with smaller downpayments than traditional underwriting guidelines allow. LEMs are premised on the proposition that homeowners in such "location efficient" areas can safely be allowed to breach underwriting guidelines designed to prevent mortgage default because they have lower than average automobile-related transportation expenses and more income available for mortgage payments. This paper employs records of over 8,000 FHA-insured mortgages matched with data on various measures of location efficiency to test this proposition. Our results suggest that it does not hold and that LEMs—like other low-downpayment mortgage programs—will raise mortgage default rates. This cost must be weighed against any potential anti-sprawl benefits LEMs may have.urban sprawl, location efficiency, mortgage, default

Measuring the Value of Health Improvements from Great Lakes Cleanup

Exposure to pollutants in the Great Lakes Region can have significant effects on human health. Some forms of pollution affect humans directly, through the air we breathe and water we drink. Other forms of pollution affect humans indirectly, for example through consumption of contaminated fish. In this paper the authors describe methods to measure health benefits in monetary and nonmonetary terms in the context of reductions in pollutants as part of a program to improve the environment in the Great Lakes. The paper is meant to be an introduction to this topic for a general audience interested in the Great Lakes.

The Definition and Choice of Environmental Commodities for Nonmarket Valuation

Economic analyses of nature must somehow define the “environmental commodities” to which values are attached. This paper articulates a set of principles to guide the choice and interpretation of nonmarket commodities. We describe how complex natural systems can be decomposed consistent with what can be called “ecological production theory.” Ecological production theory--like conventional production theory--distinguishes between biophysical inputs, process, and outputs. We argue that a systems approach to the decomposition and presentation of natural commodities can inform and possibly improve the validity of nonmarket environmental valuation studies. We raise concerns about the interpretation, usefulness, and accuracy of benefit estimates derived without reference to ecological production theory.nonmarket valuation, stated preference, revealed preference, commodities, endpoints

The Second-Best Use of Social Cost Estimates

A significant literature has developed to estimate the damages to third parties from new electricity generation technologies. This paper focuses on how such estimates can be profitably used in the present regulatory environment, and in the potential new environment that may result from restructuring in the electricity industry.

Six Steps to a Healthier Ambient Ozone Policy

EPA appears likely to tighten the ambient ozone standard, even as many areas of the country are having great difficulties meeting the current standard. This paper offers an analysis of potential regulatory, administrative, and legislative initiatives for reducing the costs of meeting ozone standards. The detailed analysis of these initiatives is organized into six steps: (i) acknowledge mistakes and adapt to new knowledge; (ii) rehabilitate EPA's Title I Program; (iii) build on the best ideas; (iv) clarify and change the Clean Air Act; (v) educate the public; and (vi) fund research. EPA can go a long way to make its programs more efficient and effective without changes in the Clean Air Act; indeed, a number of its current initiatives show promise. But it must do more. Congress can help, too, by giving EPA the statutory guidance and freedom it needs to improve the program.

The Impact of Delhi's CNG Program on Air Quality

This paper estimates the impact on Delhi’s air quality of a number of policy measures recently implemented in the city to curb air pollution using monthly time-series data from 1990 to 2005. The best known of these measures is the court-mandated conversion of all commercial passenger vehicles—buses, three-wheelers, and taxis—to compressed natural gas (CNG). Broadly, the results point to the success of a number of policies implemented in Delhi but also to a number of areas of growing concern. For example, the results suggest that the conversion of buses from diesel to CNG has helped to reduce PM10, CO, and SO2 concentrations in the city and has not, contrary to conventional wisdom, led to the recent increase in NO2. At the same time, however, the conversion of three-wheelers from petrol to CNG has not had the same benefit, possibly because of poor technology. Another policy measure that appears to have had a positive impact on air quality is the reduction in the sulfur content of diesel and petrol. This has led to a decrease in SO2 levels and, because of conversion of SO2 to sulfates (a fine particle), a decrease in PM10 concentrations. Some of these gains from fuel switching and fuel-quality improvements are, however, being negated by the increase in the proportion of diesel-fueled cars, which is leading to an increase in PM10 and NO2 levels, and by the sheer increase in the number of vehicles.air pollution, compressed natural gas, low-sulfur diesel, diesel-fueled cars, Delhi

Economic Uncertainties in Valuing Reductions in Children's Environmental Health Risks

The recognition that environmental hazards can affect children differently and more severely than adults has provoked growing concern in industrialized nations about the impact of environmental pollution on children’s health. In this paper, commissioned by the OECD, we are charged with examining “economic uncertainties” associated with valuing the benefits of environmental policies that reduce risk to children’s health. We examine two sources of uncertainty in benefits estimation: forecasting uncertainty and modeling uncertainty. We explore how these sources of uncertainty affect the use of standard economic and non-economic approaches to the valuation of health benefits. These include willingness-to-pay measures, cost-of-illness and human-capital measures, and quality-adjusted life years (QALYs) and related non-economic measures.willingness to pay, QALY, children, social welfare function, health valuation, environmental health, household behavior

Intel's XL Permit: A Framework for Evaluation

The paper develops a framework to evaluate permits granted to firms under the Environmental Protection Agency's Project XL � with emphasis on the novel air permit granted to the Intel Corporation. We describe the permit, the process that created it, and the types of costs and benefits likely to arise from this type of "facility-specific" regulatory arrangement. Among other things, the paper describes the permit's impact on environmental quality, production costs, transaction costs, and Intel's strategic market position. The paper also considers how an estimate of the costs and benefits � both to Intel and society � might be estimated. While facility-specific regulation typically conjures images of production cost savings as processes are re-engineered and low-cost abatement strategies pursued, the Intel case highlights perhaps a more important source of benefit: flexibility in the form of streamlined permitting. Flexibility in this form allows for accelerated product introductions, with potentially significant benefits to the firm and possibly to society.

Efficiency and Political Economy of Pollution Control with Ancillary Benefits: An Application to NOx Control in the Chesapeake Bay Airshed

This paper examines implications for cost-effective allocation of pollution controls when preferences of coalitions organized along regional lines, or according to preferences for air vs. water quality improvements, are accounted for. Results are compared to a base case in which NOx emissions reductions must satisfy only a water quality standard, and total costs are minimized over emissions sources. Relative to base-case result that marginal control costs must be equal across sources, stronger relative preferences for air imply shifting of control toward sources that produce greater ancillary benefits to air quality. Regional differences may require side payments to induce cooperation where benefits are low, but this will not affect how controls themselves should be allocated.