De-Mystifying Research Design and Measuring the Demand for Environmental Amenities

Find the right quasi-experiment, the source of an “accidental” assignment of people to different environmental treatments and…presto, you can recover the demand for an environmental amenity. If this were actually true, the life of a policy analyst would be easier.

The revolution in applied micro-economics calling for expanded use of quasi-experiments to measure the effects of public policies has swept through many sub-fields of economics. Environmental economics may well be the most recent to see sweeping conclusions about what the new strategies can accomplish and how we should interpret their findings.

A number of activities are underway within CEESP to de-mystify the logic of quasi-experimental methods. Professor Nicolai Kuminoff of ASU and Professor Jaren Pope of Brigham Young University have outlined the conceptual logic for these methods and what can be derived from them in the context of hedonic models that describe how environmental amenities affect residential property values.

In a series of papers, Kuminoff and Pope, along with other co-authors, have investigated a number of theoretical, practical and policy related insights that we need to re-think with the new methods and access to larger data sets.

First in their recent Journal of Environmental Economics and Management paper with Professor Chris Parmeter of the University of Miami, the authors find the conventional wisdom to “keep it simple” when selecting a specification for hedonic models needs to be reconsidered. The use of observable spatial features of each hedonic property data set can help to mitigate the confounding effects of omitted variables. This strategy allows the analyst to recover greater resolution in the effects of spatially delineated amenities on housing prices.

Second, Kuminoff and Pope have outlined the conditions under which property value capitalization of changes in landscape amenities, such as air quality, open space, and exposure to health risks, can be regarded as valid measures of residents’ willingness to pay for those changes.

In a complementary set of research Klaiber and Smith propose a strategy for evaluating the importance of the Kuminoff-Pope conditions for the measures of market response to a variety of different changes in locational attributes, including landscape amenities and cleanup of Superfund sites.

Research on these topics continues within the Center. The logic of partial identification was one of the topics that Kuminoff discussed in the topics class offered for pre-doctoral fellows at CEESP in the Spring of the 2010-2011 academic year.

Learn More:

• Working paper, Kuminoff and Pope, May 2010, “Hedonic Equilibria, Land Value Capitalization, and the Willingness to Pay for Public Goods.”
• Journal of Urban Economics, Kuminoff and Jarrah, May 2010, “A New Approach to Computing Hedonic Equilibria and Investigating the Properties of Locational Sorting Models.”
• JEEM, Kuminoff, Parmeter and Pope, November 2010, “Which Hedonic Models Can We Trust to Recover the Marginal Willingness to Pay for Environmental amenities? ”