Estimation of Perceived Risk and Its Effect on Property Values

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 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. Results indicate that media coverage and high prior risk perception increase current perceived risk. Increased perceived risk surrounding the hazardous waste site, in turn, lowers property values.