Monday, January 9, 2017

The Amenity Cost of Road Noise

This article reports [the results of] a complete two stage hedonic analysis for road noise. For the estimation of the hedonic price function I develop a spatial research design which simultaneously reduces the risk of omitted variable bias and the risk of measurement error in the noise measure. The preference parameters are identified following the approach developed in Bajari and Benkard (2005) by using a simple functional form for utility. Preferences are very heterogeneous and observable demographic characteristics explain 30 percent of the variation in taste for quiet. Results are used to discuss willingness to pay for noise reductions from two policy measures.
Several policy instruments are currently in use in the study area to limit the impact of road noise pollution. These span from technical solutions such as noise reducing asphalt or emission standards for tyres and vehicles, to traffic management, and subsidies for noise insulation. The current section discusses the welfare changes associated with two of these instruments: Regulation at the source in the shape of technical requirements (standards) for tyres, and traffic management with the closure of a busy road in central Copenhagen for private motor vehicles.

The friction between road and tyres is of increasing importance in generating road noise for vehicles travelling at more than 35 km per hour. The noise emission of tyres has been subject to regulation at the EU level since 2001 and was tightened in 2009 ((EC) No 661/2009) with effect from November 2011. The noise limits for tyres were reduced by 3-4 dB, but as the existing fleet was to a large extent already equipped with tyres below the limit for noise the expected effect on noise pollution has been assessed to be closer to 1-2 dB than 3-4 dB....

The median WTP for a 1 dB reduction of road noise is generally higher for families with children under the age of 18. Families without children and retiree households have very similar WTP somewhat lower than families with children. Students and singles have the lowest WTP....The total WTP for a 1 dB reduction across the households sums to DKK 3.7 million annually in 2000-prices for the 23,000 households in the 200 m sample with noise above 55 dB. Although families with children only account for 23 % of the sample, 37% of the benefits from the 1 dB reduction accrue to them. In contrast, singles make up 28 % of the sample and receive only 15 % of the benefits. If these WTP estimates are representative of the population of the whole EU area the total willingness to pay for the reduction in road noise is substantially larger. Overall, the benefits are likely to exceed the cost of the policy. Low noise tyres were already on the market prior to 2011 and were not generally more expensive than other tyres nor did they have worse properties.
A preferred strategy for noise reduction in the municipality of Copenhagen is to concentrate traffic on the network of major roads (Center for Miljø, 2013). In late 2008 an experiment was conducted in the district of Nørrebro in central Copenhagen. The municipality of Copenhagen decided to re-route traffic out of Nørrebrogade, a main route into the center of Copenhagen. Parts of the street were closed for car traffic temporarily for 3 months starting in October 2008. In the fall of 2009 it was decided to make the closure permanent with minor changes and to reduce the speed limit from 50 to 40 km/h. An evaluation of the effects of the project has shown a reduction in noise levels of up to 3 dB for homes located in the affected part of Nørrebrogade, where noise levels were estimated at 68 dB before the project....

Table 10 shows the distribution of WTP for a 3 dB reduction for five groups in the road border sample: The whole sample; households in the Nørrebro district; households with at least 68 dB road noise; households in Nørrebro with at least 68 dB road noise; and finally, households in a wealthier neighboring district, Østerbro, with at least 68 dB road noise. The WTP for a 3 dB reduction is very heterogeneous in the sample as a whole. In Nørrebro the heterogeneity is lower and WTP is generally lower with a median WTP half the size of the median WTP for the sample as a whole. For households in the whole research area exposed to at least 68 dB of road noise, the distribution of WTP for a 3 dB reduction shifts to the right and is less dispersed though still with a long right tail.
Noisy traffic
The WTP for households in Nørrebro with more than 68 dB of road noise is similar but more symmetric with an annual median WTP of 386 DKK not far from the mean of 417 DKK. In the wealthier district of Østerbro, the distribution of WTP shifts to the 25right with a median WTP of 467 DKK and a mean WTP of 606 DKK indicating that individual households there would gain more from a similar reduction....
Household income net of housing expenditure is associated with a stronger taste for quiet as might be expected. Taste for quiet can also be seen to increase with age at a declining rate. For the demographic groups, families with children have a stronger preference for quiet, whereas singles and retirees have a significantly weaker taste for quiet than a double-income household without children. These findings are consistent with the policy scenario discussed above and the observed noise exposure for these groups.... In total, the observable characteristics of the household explain no more than 30 percent of the variation in taste for quiet.

Based on these results, a large part of preference heterogeneity is due to variation in unobservable taste....The relative error in WTP gives some idea of how wrong an estimate of WTP based solely on demographics and the current model might be.... Although the predicted mean WTP for a 3 dB reduction is equal to the actual mean WTP, there are large prediction errors for individual households. The median relative deviation from actual WTP is an overestimation of WTP by 40 %. The model performs especially poorly in capturing the WTP for households exposed to intermediate noise levels where the median prediction error indicates an overestimation by 130 %.
by Kathrine von Graevenitz, Centre for European Economic Research (ZEW)
ZEW - Centre for European Economic Research
Discussion Paper No. 16-087; December 15, 2016; 95 pages in PDF
Keywords: Hedonic method, traffic noise, preferences, measurement error
via SSRN Social Science Research Network

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