Evidence of the Effects of Water Quality on Residential Land Prices

We use hedonic techniques to show that water quality has a significant effect on property values along the Chesapeake Bay. We calculate the potential benefits from an illustrative (but limited) water quality improvement, and we calculate an upper bound to the benefits from a more widespread improvement. Many environmental hedonic studies have almost entirely ignored the potential for omitted variables bias—the possibility that pollution sources, in addition to emitting undesirable substances, are likely to be unpleasant neighbors. We discuss the implications of this oversight, and we provide an application that addresses this potential problem