VALUING ENVIRONMENTAL QUALITY: A SPACE-BASED STRATEGY*

This paper develops and applies a space-based strategy for overcoming the general problem of deriving the implicit demand for nonmarket goods. It focuses specifically on evaluating one form of environmental quality, distance from Environmental Protection Agency designated environmental hazards, via the single-family housing market in the Puget Sound region of Washington State. A spatial two-stage hedonic price analysis is used to: (i) estimate the marginal implicit price of distance from air release sites, hazardous waste generators, hazardous waste handlers, superfund sites, and toxic release sites; and (ii) estimate a series of implicit demand functions describing the relationship between the price of distance and the quantity consumed. The analysis, which represents an important step forward in the valuation of environmental quality, reveals that the information needed to identify second-stage demand functions is hidden right in plain sight-hanging in the aether of the regional housing market.