Hedonic valuation of harmful algal bloom pollution: Why econometrics matters?

Harmful algal bloom (HAB) pollution is a major environmental threat worldwide. This is the case in Brittany, where approximately half of the coastal municipalities has been polluted in the two last decades. This pollution affects the welfare of the population by decreasing the accessibility of beaches for several professional and recreational users (anglers, walkers, joggers, etc.). Here, we estimated the willingness to pay (WTP) to reduce HAB pollution levels using the hedonic pricing method for the particular case of the Breton rural housing market between 2010 and 2012. We found that, on average, residents that were located 20 km from a polluted beach were willing to pay approximately 208euro/inhabitant/year to reduce HABs to the minimal observed levels on Breton seacoasts. This estimate controlled for three sources of identified potential biases biathat may affect the quality of the estimation: the agricultural characteristics of upstream watersheds, the spatial unobserved heterogeneity and the adjacency effects. Indeed, the estimated WTP was 18% to 46% higher than the WTP that was estimated with a nonspatialized econometric model that did not account for these features. In particular, the adjacency effect on house prices due to housing market functioning explained one-third of the total effect. This study illustrates the importance of using suitable econometric specifications when applying revealed preference estimations to house prices.