Measuring benefits of air quality improvement: Evidence based on residential property prices in kerala, India

Environmental amenities and other site specific characteristics can affect the price and productivity of residential property in a variety of ways. An analysis of the demand for air quality in Cochin industrial agglomeration in India is presented using the survey data from 600 households. Hedonic property value model is used to identify and monetarize the benefits in the value of residential property due to an improvement in air quality. Incorporating a number of structural, neighborhood, environmental and socio economic variables as the determinants of the consumer's willingness to pay for reduced air quality, it is hypothesized that the major environmental variable SO2 was inversely related to the residential property values. Estimated implicit prices for different sites in different locations correspond to the individual willingness to pay (WTP) for a marginal unit of environmental good purchased. Adopting a two-stage estimation procedure to estimate these relationships, it is found that, on an average, an increase in the level of SO2 reduced property prices in the study area by 0.45 percent. Estimates further revealed that the households are willing to pay an additional amount of 1.48 percent for a reduction in SO2.