Using Hedonic Property Models to Value Public Water Bodies: A Note Regarding Specification Issues by

The hedonic literature has established that public water bodies provide external bene…ts that are re‡ected in the value of nearby residential real estate. The literature has employed several approaches to quantify these nonmarket services. With a residential hedonic model, this paper tests whether model speci…cation a¤ects resource valuation using an actively managed reservoir in Indiana and a passively managed lake in Connecticut. The results indicate that valuation is quite sensitive to model speci…cation, and that omitting either the waterview or waterfront variables from the hedonic function likely results in a misspeci…ced model. The …ndings from this study are important for researchers and public agencies charged with managing water resources to bear in mind as the external bene…ts from existing or proposed man-made lakes and reservoirs are estimated. Therefore, while it requires considerably more e¤ort to determine which properties are in waterfront loactions and which properties have a view, the potential misspeci…cation of "distance-only" models likely justi…es these extra research costs. Further, the …ndings in this analysis call into question results from "distance-only" models in the literature. AGU Index Terms: 6304 Bene…t-cost analysis