Water Quality and Residential Property Values: A Natural Experiment Approach

Abstract

We use hedonic techniques to measure the impact of improved water quality on inland real estate values. By considering a unique natural experiment setting where consistent and recognizable variation in water quality across two rivers within a small geographic area is well known to market participants, we avoid the major problems inherent in hedonic water quality studies. Controlling for spatial autocorrelation, results show that land and property values increase more substantially with proximity to the non-contaminated river as opposed to the mercurycontaminated river that carries a fish consumption advisory. Results suggest that the value of improving water quality to a level that will remove the advisory is between $7.3 and$12 million. Key Words: