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Estimation of perceived risk and its effect on property values

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  • McCluskey, Jill
  • Rausser, Gordon C.

Abstract

A dynamic discrete time model is estimated in order to analyze the evolution of perceived risk around a hazardous waste site and its effect on property values. Residential property values are modeled as a function of housing attributes and perceived risk to health from a nearby hazardous waste site using an hedonic price framework. Perceived risk enters the model as a state equation, which includes a media coverage variable. An aggregate measure of perceived risk is estimated and weighted by the distance to the hazardous waste site in order to individualize risk to each location. Using a data set that spans seventeen years of property values around a hazardous waste site, the results indicate that media coverage and high prior risk perception increase current perceived risk. Increased perceived risk surrounding the hazardous waste site, in tum, lowers property values.

Suggested Citation

  • McCluskey, Jill & Rausser, Gordon C., 2000. "Estimation of perceived risk and its effect on property values," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt46x0r71b, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt46x0r71b
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    More about this item

    Keywords

    hazardous waste; land valuation; real property; Social and Behavioral Sciences;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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