Examining Implicit Price Variation for Lake Water Quality

Abstract

Hedonic price models are commonly used to estimate implicit prices for lake water quality across small geographic regions that might be assumed to be a part of a common real estate market. Yet recent studies expand the geographic scale of the hedonic model potentially obscuring important differences in implicit prices across markets. We estimate implicit prices for lake water quality across multiple states in the northeast and upper Midwest in the United States of America at three different geographic scales: substate, state, and multistate. We find implicit price estimates are heterogeneous at both the substate and state-levels, which is not accounted for in state-level or multistate hedonic models. Our results show that estimates across a broad geographic scale can be driven by a single subregion within the defined area. Overall, the study demonstrates that using a single hedonic model over a large geographic area may obscure important heterogeneity in implicit prices used to estimate potential benefits for water-quality improvements.