Demand for Environmental Quality: A Spatial Hedonic Approach

We first estimate the relationship between house prices and environmental disamenities using spatial statistics, confirming that nearby point-source pollutants depress house price. We then calculate implicit prices of environmental quality and related characteristics from the house price hedonics to estimate a demand curve for environmental quality, finding a price elasticity of demand of ?0.12. We find evidence of significant spatial effects in both the hedonic and demand estimations. We find that environmental quality and school quality are purchased together (elasticity =-0.80), environmental quality and house size are substitutes (elasticity=0.91), and environmental quality and lot size are not related goods.