Can you hear me now (that I’m in Your Backyard)? A Mesa, Arizona case study on freeway construction and property values

Date

2013-08

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Abstract

The paper introduces environmental economics, and its role in the study of public goods and externalities. Without definable property rights, other methods must be used in order to value the environment. In particular, this paper considers the value of quiet associated with property values by looking at causes of noise pollution, which is often the dominant effect observed in these studies regarding construction projects; however, it is not the only possible outcome. It introduces a number of environmental valuation techniques, with emphasis on the hedonic approach – which utilizes marketable goods as a proxy for environmental value. The author outlines significant literature that applies the hedonic approach in the study of noise pollution using property values as the marketable good, namely Nelson (2008) and Palmquist (1982). It is important to note that most environmental papers discuss the concept of willingness to pay or willingness to accept. In the following paper, however, a more general microeconomic analysis is presented. That is, we look more explicitly at consumer preferences than prices. A case study of two zipcodes in Mesa, Arizona is performed. One zipcode is directly bisected by a freeway, while the other is not. The two zipcodes are considered to be homogeneous. Arguments and demographics are presented in order to support this key assumption. The first approach uses Maricopa County Assessor’s Office assessed home values. Using a dummy variable in a multiple regression, it is observed that – from the assessor’s point of view – the positive externalities associated with the freeway outweigh the negative externalities. The second approach uses sale prices instead of assessed values, but the same result is observed from the home buyer and seller’s perspective. In these types of studies we typically see a dominant effect by the negative externality, as in the Nelson and Palmquist literature. However, it is the case in this study that a positive externality, likely reduced commute times to work and entertainment, is dominant. These results, along with some deficiencies and possible improvements are discussed in detail.

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Keywords

Construction, Hedonic regression, Property values

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