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Estimation of Perceived Risk and Its Effect on Property Values

A dynamic, discrete-time model is estimated in order to analyze the evolution of perceived risk around a hazardous waste site and its effect on property values. Residential property values are modeled as a function of housing attributes and perceived risk from a nearby hazardous waste site using an hedonic-price framework. Perceived risk enters the model as a state equation, which includes a media coverage variable. Results indicate that media coverage and high prior risk perception increase current perceived risk. Increased perceived risk surrounding the hazardous waste site, in turn, lowers property values. (JEL D80, R1)