Lots of value? A spatial hedonic approach to water quality valuation

Abstract

Very few studies have addressed the effects of water quality on recreational values in a hedonic property price setting. This study elicits the value of improved water quality capitalised in Finnish recreational property prices adjacent to the Baltic Sea, lakes and rivers. In addition, spatial econometric methods are employed to address the spatial autocorrelation found in data. An expert-determined, water body specific water quality index that describes the usability status of the water is used instead of more specific, but also more problematic, water quality indicators. The study finds that water usability has a positive effect on property prices, with weak suggestions on non-linearity.