Tuesday, February 26, 2013

Do Housing Prices Reflect Environmental Health Risks? Evidence from More than 1600 Toxic Plant Openings and Closings

A ubiquitous and largely unquestioned assumption in studies of housing markets is that there is perfect information about local amenities. This paper measures the housing market and health impacts of 1,600 openings and closings of industrial plants that emit toxic pollutants. We find that housing values within one mile decrease by 1.5 percent when plants open, and increase by 1.5 percent when plants close. This implies an aggregate loss in housing values per plant of about $1.5 million. While the housing value impacts are concentrated within 1/2 mile, we find statistically significant infant health impacts up to one mile away.
An operating toxic plant within one mile is associated with an increase in the incidence of low birth weight of 0.0013 - 0.0014 or about 2.0 percent. And the effect is approximately symmetric, with low birth weight increasing after plant openings and decreasing after closings, though the latter effect is statistically insignificant.
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An operating plant has a small but statistically significant positive effect on the [an index of infant health created by the authors], increasing the probability of a bad health outcome by 0.016-0.017 standard deviations.
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Since the mean housing value within a mile of a plant is $125,927, the value of the average house falls by about $1,890. Under the assumptions described in Section 2 these estimates can be interpreted as a household’s MWTP to avoid living within one mile of a toxic plant. This is the dollar amount that toxic plants would owe each homeowner located within one mile of the plant under a system of full compensation for losses in property values....
In this sample, the value of the median housing stock within one mile of a toxic plant is $98.6 million. Multiplying this by 1.5 percent yields an average housing market capitalization of about $1.5 million. Although non-negligible, this is small compared to the capital cost of new industrial plants. As a point of comparison, a small (100MW) coal-burning power plant costs about $280 million to build.
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The estimates of MWTP from the housing value analysis can hence be compared with a valuation of the costs of low birth weight. It has been estimated that each low birth weight baby incurs approximately $14,500 in additional hospital costs in the first year of life (Russell et al., 2007) and is 50% more likely to need special education services, which had an incremental cost of $8000 per child in 2000 (Chaikind and Corman, 1991; President’s Commission on Special Education, 2002). Black, Devereux, and Salvanes (2007) show that in addition to the direct costs, low birth weight decreases future adult earnings. A back of
the envelope estimate based on their figures suggests that the present discounted value of the reduction in lifetime wages due to low birth weight is $77,000.43 Hence, a conservative estimate of the added costs of low birth weight children (which excludes things like medical bills after the first year) is $95,500.

Between 1990 and 2002, there were 10.9 million births in our five sample states. And, as we reported earlier, there are 1.27 toxic plants, on average, within one mile of each birth. Multiplying the number of births by .0014 (the estimate from column 6 of Table 4) and then by 1.27 implies that in these states, during this period, toxic plants increased the number of low birth weight infants by 19,380. At $95,500 per birth, this is $1.85 billion in costs due to low birth weight births, which works out to an average of about $542,000 per toxic plant during our sample frame. To get the total lifetime cost per plant, we first need to calculate the low birth weight costs per year by dividing by the number of years in our sample, which is about $42,000 (i.e. $542,000 divided by the 13 years in our sample). This implies that the typical low birth weight cost of a toxic plant is around $700,000 (i.e. the per year costs multiplied by the average age of the plants in our sample, 17 years).
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by Janet Currie, Lucas Davis, Michael Greenstone and Reed Walker
National Bureau of Economic Research (NBER) www.NBER.org
NBER Working Paper No. 18700; Issued in January 2013

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