Determining perception-based impacts of noxious facilities on wage rates and property values

This document, written for the US Department of Energy, discusses current information and the need for future research on estimating the impacts on wages and property values that could result from people's perceptions of the risks associated with noxious facilities. Psychometric studies indicate that the US population is averse to living near noxious facilities, nuclear-related facilities in particular. Contingent valuation and hedonic studies find that the net economic impacts of proximity to noxious facilities are generally negative and often substantial. Most of these studies are limited in scope, and none estimate the impacts derived from public perceptions of such facilities. This study examines the mechanisms by which negative public perceptions result in economic impacts reflected in wages and property values. On the basis of these mechanisms, it develops a predictive model of perception-based impacts and identifies the data and methods needed to implement it. The key to predicting perception-based impacts lies in combining psychometric and hedonic methods. The reliability of psychometric measures as indicators of aversive stimuli that precipitate economic impacts can be empirically tested. To test the robustness of the findings, alternative estimation methods an be employed in the hedonic analysis. Contingent valuation methods can confirm the results.