The value of water as an urban club good: A matching approach to community-provided lakes

Community-provided urban lakes located in arid environments provide significant amenities to residents but require large quantities of water to maintain lake levels. We use matching techniques to recover the average capitalized value of lakes above the costs of maintenance by comparing transactions in lake communities to observationally similar transactions in surrounding communities. We differentiate between adjacent and non-adjacent houses to recover heterogeneous treatment effects and allow estimates to vary across communities. Importantly, we consider the role of imperfect matching on spatially and temporally varying unobservable variables in our choice of estimator and the appropriate set of potential control properties. Our results suggest that the capitalized value of lakes is heterogeneous with a mean estimate of $6500 an acre-foot. Our results provide estimates of the changes in water prices that would make this form of development unprofitable, illustrating the linkage between water pricing policy and the water intensity of development. (C) 2012 Elsevier Inc. All rights reserved.