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Environmental Valuation in Developed Countries

Case Studies

Edited by David Pearce

This is the second of two volumes of case studies that illustrate how environmental economists place values on environmental assets and on the flows of goods and services generated by those assets. This important book assembles studies that discuss broad areas of application of economic valuation – from amenity and pollution through to water and health risks, from forestry to green urban space. In this, his last book, the late David Pearce brought together leading European experts, contributors to some two dozen case studies exploring the frontiers of economic valuation of natural resources and environmental amenity in the developed world.
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Chapter 17: Hedonic Price Analysis of Road Traffic Noise Nuisance

Brett Day, Ian Bateman and Iain Lake


* Brett Day, Ian Bateman and Iain Lake INTRODUCTION The market in which housing is traded, the property market, differs from that of many other differentiated goods in that it is fundamentally spatial in nature. The property market is not a global or even national market. Rather, many localized property markets may exist simultaneously, even within a single urban conurbation. Unlike other goods that are not constrained spatially, producers (i.e. property owners) cannot transport their products from one location to another. Indeed, spatial constraints in property markets ensure that, in the short run at least, the supply of properties to each market is extremely inelastic. Consequently, we would not expect market-clearing prices to equalize across property markets. Indeed, the equilibrium hedonic price schedule for any particular housing market will be unique to that market reflecting the specific conditions of supply and demand that exist at that locality (see Day, 2001 for a more detailed explanation). Since property prices in two different markets may be determined by very different hedonic price functions, a primary concern for hedonic researchers is to ensure that data are drawn from a single property market. Using data from the city of Glasgow in Scotland this chapter seeks to identify property submarkets using statistical techniques. Separate hedonic functions are estimated for each submarket and statistical tests used to establish the uniqueness (or otherwise) of each function. The chapter is organized as follows. The next section provides a brief theoretical overview of hedonic analysis. We describe the...

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