The Effect of Health Risk on Housing Values: Evidence from a Cancer Cluster.

There is a substantial literature that examines trade-offs between money and health risks. This literature has shown that estimates of marginal willingness-to-pay (MWTP) for changes in risk can be inferred from a wide variety of market situations. Much of the work has focused on mortality risks in the labor market (W. Kip Viscusi and Joseph E. Aldy, 2003), but substantial work has also looked for compensating differentials in the housing market. Significant negative effects on housing values have been found to be associated with hazardous waste sites (Ted Gayer et al., 2000), water pollution (Christopher G. Leggett and Nancy E. Bockstael, 2000), and air pollution (Kenneth Y. Chay and Michael Greenstone, 1998). This literature has been primarily motivated by policy considerations. Policymakers have at their disposition many tools for reducing environmental health risks, including technology standards and incentive-based mechanisms, as well as water and air treatment facilities and hazardous waste remediation. The relative merits of diverse risk-reducing policies must be evaluated in terms of the value households put on risk. The efficient level of public spending for risk-reduction is reached when the sum of households' MWTP is equal to marginal cost. Household MWTP for changes in environmental health risk is not directly observed in the market. If the level of risk varies across locations, however, and if households are mobile, then demand will be capitalized into property values. Standard assumptions about preferences