The Value of Disappearing Beaches: A hedonic pricing model with endogenous beach width

TLDR: In this paper, the authors correct for the resulting attenuation and endogeneity bias in a hedonic property value model by instrumenting for beach width using spatially varying coastal geological features and find that the beach width coefficient is nearly five times larger than the OLS estimate, suggesting that beach width is a much larger portion of property value than previously thought.

About: This article is published in Journal of Environmental Economics and Management.The article was published on 2011-05-01 and is currently open access. It has received 153 citations till now. The article focuses on the topics: Beach nourishment.

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Table 3: Parameter Values

TABLE 2 (Cont.)– Location Fixed Effects and First Stage Regression Statistics

TABLE 2 (Cont.)– Location Fixed Effects and First Stage Regression Statistics

Table 7 Decrease (%) in Discounted Net Value with increased erosion rate and variable costs of

TABLE 1: Variable Description and Descriptive Statistics

Table 6

Frequently asked questions

Q1. What have the authors contributed in "The value of disappearing beaches: a hedonic pricing model with endogenous beach width" ?

This paper incorporates the endogeneity of beach width in a first-stage hedonic property value model. This paper also begins to bridge the gap between empirical hedonic models and conceptual resource economics models of coastal management decisions. Their simulation results show that the predicted interval between nourishment projects using hedonic value of beach width accounting for endogeneity is closer to the observed data for beaches that have undertaken more than ten nourishment projects. The authors find that the coefficient on beach width more than twice as large as the OLS estimate, suggesting that beach width is a much larger portion of property value than previously thought. In scenarios with increased baseline erosion and increased variable costs of nourishment sand ( due to scarcity ) the authors find that the long-term net value of coastal residential property can fall by as much as 56 % when the baseline erosion triples and cost of sand quadruples. 

Q2. What are the future works mentioned in the paper "The value of disappearing beaches: a hedonic pricing model with endogenous beach width" ?

Their analysis motivates further research in this area to better understand the dynamics of beach erosion and the use of sand as a resource in managing shorelines. 

Q3. How do the authors measure the erosivity of the coastal environment?

The authors use distance from shore to the continental shelf at a depth of 20m as an instrument for the erosivity of the coastal environment. 

Q4. What is the definition of a valid instrument for beach width?

Exogenous variation in the morpho-dynamics of the coastal system and physical beach characteristics that are correlated with the width can be used to instrument for the beach width. 

Q5. How much can a beach value fall when the baseline erosion triples?

Their simulation results indicate that the value of coastal residential property can fall by as much as 53% in places like Carolina Beach when the baseline erosion triples and variable costs of sand quadruple. 

Q6. What are the costs associated with implementing a nourishment project?

The costs associated with implementing a nourishment project include the expected cost of construction, present value of periodic maintenance and any external cost such as the environmental cost associated with a nourishment project. 

Q7. What is the way to determine the optimal time interval between nourishment projects?

The coastal manager chooses an optimal time interval between nourishment projects that have high fixed costs and variable costs depending on the volume of nourishment. 

Q8. Why does the implicit price function give biased estimates of the coefficient on beach width?

Ignoring this endogeneity due to the coastal dynamics in the implicit price function will give biased estimates of the coefficient on beach width (or coefficients on hazard risks that are functions of beach width). 

Q9. What is the definition of the coefficient on beach width?

In the semi-log model specification, the coefficient on beach width can be interpreted as the percentage change in the property value due to a unit (one foot) increase in the beach width. 

Q10. How does the MonteCarlo experiment recover the true value of the coefficient on beach width?

The authors find that the MonteCarlo experiment recovers the true value using IV and that the magnitude of the OLS estimate of the coefficient on beach width is approximately three times smaller than the TSLS estimate, which is similar to their empirical result.