Environmental Valuation & Cost-Benefit News

Link: http://ageconsearch.umn.edu/bitstream/49261/2/AAEA_637249_beach_value_SG_et_al_2009.pdf

Abstract: Beach nourishment is a popular policy beach management option in many parts of the US Atlantic and Pacific Coasts. The value of beach width is an important factor that enters the benefit-cost calculus of beach replenishment decisions. Previous studies have consistently shown a positive influence of beach width on the value of coastal property but have not considered the econometric implications of policy interventions in the coastal system and the feedback that beach nourishment has on the rate of shoreline retreat. This paper incorporates the endogeneity of beach width in a first-stage hedonic property value model. Relying on knowledge of coastal geomorphology, Sathya Gopalakrishnan, Martin D. Smith, Jordan M. Slott and A. Brad Murray use instrumental variables to recover an unbiased and consistent estimate of the coefficient on beach width. The authors find that the coefficient on beach width more than twice as large as the OLS estimate, suggesting that beach width is a much larger portion of property value than previously thought. This paper also begins to bridge the gap between empirical hedonic models and conceptual resource economics models of coastal management decisions. We use results from the hedonic model to parameterize a dynamic capital-theoretic model of beach nourishment decisions. Our simulation results show that the predicted interval between nourishment projects using hedonic value of beach width accounting for endogeneity is closer to the observed data for beaches that have undertaken more than ten nourishment projects. In scenarios with increased baseline erosion and increased variable costs of nourishment sand (due to scarcity) they find that the long-term net value of coastal residential property can fall by as much as 56% when the baseline erosion triples and cost of sand quadruples.
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The coefficient on beach width in their Model 1 is 0.002, which can be interpreted as a 0.2% increase in the value of a property resulting from one foot increase in the beach width. This estimate is larger but of comparable magnitude to an estimate (0.001) found in the literature from a study with the same model specification for another location (Kreisel, Landry, and Keeler 2005). They also include two physical beach quality attributes – the presence of vegetated dunes and the presence of shells – as explanatory variables. We find that the presence of dunes does not have a statistically significant influence on property value, whereas a shelly beach increases property value. In Model 2 they use a double log specification where all the continuous explanatory variables are also transformed by taking their natural logs. As in Model 1 they find that the coefficients on the property characteristics have the expected signs and are significant at the 1% level. The coefficients on the discrete explanatory variables are similar to Model (1). The coefficient on beach width is 0.19 indicating that a one percent increase in beach width leads to a 0.19% increase in the value of the property. Models 3 and 4 are estimated using Two-stage Least Squares (TSLS) instrumenting for endogenous beach width using geomorphological variables – distance to continental-shelf line and the presence of scarps. They find that the coefficient on beach width is 0.006, which is three times as large as the coefficient in Model 1. ... The coefficients on all other explanatory variables do not change significantly. ... In Model 4, ... the coefficient on beach width is 0.485, which is also more than twice as large as the estimated coefficient in Model 2.
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by Sathya Gopalakrishnan 1, Martin D. Smith 2, Jordan M. Slott 3 and A. Brad Murray 4
1. Nicholas School of the Environment, Duke University, Box 90328, Durham, NC 27708; Email: sg63@duke.edu
2. Associate Professor of Environmental Economics, Nicholas School of the Environment & the Department of Economics, Duke University
3. Staff Engineer, Sun Microsystems Laboratories, Sun Microsystems Inc., 1 Network Drive, Burlington, MA 01803
4. Associate Professor of Geomorphology, Nicholas School of the Environment & Center for Nonlinear and Complex Systems, Duke University,
Selected Paper prepared for presentation at the Agricultural & Applied Economics Association’s 2009 AAEA & ACCI Joint Annual Meeting, Milwaukee, Wisconsin, July 26-29, 2009
AgEconSearch via REPEC Research Papers in Economics www.REPEC.org
http://ageconsearch.umn.edu/bitstream/49261/2/AAEA_637249_beach_value_SG_et_al_2009.pdf