Regulation and Capitalization of Environmental Amenities

16 Pages·2006·0.22 MB·English

REGULATION AND CAPITALIZATION OF ENVIRONMENTAL AMENITIES:
EVIDENCE FROM THE TOXIC RELEASE INVENTORY
IN MASSACHUSETTS
Linda T. M. Bui and Christopher J. Mayer*
Abstract—Environmental regulation intheUnitedStateshasundergone a correctsforinformationalasymmetriesthatmayexist.1One
slow evolution from command and control strategies towards market-
of the most pervasive examples of this is the Emergency
based regulations. One such innovation is the Toxics Release Inventory
Planning, Community Right to Know Act (EPCRA). The
(TRI), a regulation that requires polluting (cid:142)rms to publicly disclose
information abouttheirtoxicemissions.Thebasictenetofthisregulation appeal of this type of regulation is evidenced by the prolif-
is that it corrects for informational asymmetries between polluters and
eration of community right-to-know laws at the state level.
households, allowing communities topressure polluters todecrease their
These laws take various forms—from requiring state agen-
emissions. Policy-makers have judged theTRIatremendous success, as
national releases declined by43% between 1988 and 1999.Yetmany of cies to provide environmental data through the Internet, to
thefundamental problems whichareknown tolead totheclassic failure
increasing the reporting requirements for polluting plants.
of the Coase theorem (such as high transaction costs and dif(cid:142)culties in
organizing) cast doubt on the effectiveness of disclosure rules, alone, to Using disclosure of private information as an informal
leadtoanef(cid:142)cientoutcomeinthecaseofpollution.Weuseaneventstudy regulatory toolisattractivebecause itisrelativelylow-cost.
methodology with high-quality data on house prices and other local
Theoretically, both the cash-starved regulatory agency and
attributes toassess theextenttowhichthepublicvalues changes intoxic
releases and thus the success of TRI. Our major (cid:142)ndings include: (1) the regulated plant could face lower pollution abatement
declines in toxic releases appear unrelated to any political economy control expenditures. Instead of directly regulating plants
variables that might lead to public activism; (2) initial information
and ensuring compliance, the enforcement agency only
released under TRIhadno signi(cid:142)cant effect on the distribution of house
prices; and (3) house prices show no signi(cid:142)cant impact of declines in would be responsible for collecting and maintaining a pub-
reportedtoxicreleasesovertime.Standarderrorsaresmallenoughthatwe lic database, increasing community awareness, and penal-
canrejectthehypothesis thatlargedeclinesintoxicreleasesleadtomore
izing (cid:142)rms for inaccurate reporting.Apolluting (cid:142)rm would
than a 0.5% increase in house prices. These results also hold when we
control for differences in the availability of information on TRIand the be free to choose how much to change its emissions and to
possible effect of expectations. Our (cid:142)ndings cast doubt on the ability of use whatever abatement technology it wanted. Community
the public to process complex information on hazardous emissions and
policing would pressure (cid:142)rms to reduce actual emissions.
supporttheCoasetheoreminthatright-to-know lawssuchasTRImaynot
be the mosteffective form ofenvironmental regulation. In this paper, we focus on one example of this type of
regulation, called the Toxics Release Inventory (TRI). In-
troduced by the EPA under the EPCRA in 1986, TRI
I. Introduction
requires manufacturing plants that emit more than a given
ENVIRONMENTALregulation in the United States has threshold level of any listed toxic substance to provide
undergone aslowevolution fromcommandandcontrol emissions data to the EPA for use in a publicly available
strategies to more market-based approaches. In part, this database. Prior to the TRI, no record of toxic emissions
transition is in response to the overwhelming growth in the existed.
direct cost of regulation and the price of meeting those Between 1988 and 1999, TRI reported emissions fell by
regulations. In the United States, pollution abatement con- approximately 40%. Support for community right-to-know
trolexpenditures areontheorderof1.5%–2.5%ofGDPper legislation and the TRI is very strong. In a presidential
year.As the trend towards stricter,more pervasive environ- memo dated August 8, 1995, the administration wrote that
mentalregulation continues, both thecost andtheeffective- theEPCRAof1986“...providesaninnovativeapproachto
ness of regulation have become hot topics on the public protecting public health and the environment by ensuring
agenda. that communities are informed about the toxic chemicals
One such market-based innovation adopted by the U.S. beingreleased...”andthat“...Right-to-Knowprotections
Environmental Protection Agency (EPA) is to require pol- provide a basic informational tool to encourage informed
luting (cid:142)rms to publicly disclose private information about community-based environmental decision making and pro-
their emissions. The basic tenet of this regulation is that it videastrongincentiveforbusinessesto(cid:142)ndtheirownways
ofpreventingpollution.” TheapparentsuccessoftheTRIin
Received for publication October 27, 2000. Revision accepted for reducing reported toxic emissions has made the TRI and
publication December 4,2002.
*Boston University and The Wharton School, University of Pennsyl-
vania, respectively.
TheauthorswishtothankseminarparticipantsattheWEAmeetings,the 1The disclosure of private information has been used as a regulatory
JFK School, Columbia University, Boston University, University of To- mechanism inseveral instances. One example istherequired labeling of
ronto, and The Wharton School, along with Katherine Carmen, Lisa nutritional contents on food packages, and another is the Occupational
George,WayneGray,JoeGyourko,CharlieHimmelberg,BobInman,Joel Safety and Health Act, which requires employers to inform employees
Waldfogel, Marty Weitzman, and two anonymous referees, for helpful about workplace hazards. The effectiveness of such regulation, to our
comments.Anyerrors are our own. knowledge, hasnot been veri(cid:142)edempirically.
TheReviewofEconomicsandStatistics,August2003,85(3):693–708
©2003bythePresidentandFellowsofHarvardCollegeandtheMassachusettsInstituteofTechnology
694 THE REVIEW OF ECONOMICS AND STATISTICS
community right-to-know laws an attractive form of regu- eralevents, including the introduction of TRI reporting and
lation that may become even more widespread.2 subsequent changes in reported releases over time. This
From an economic perspective, one might question the methodology allowsustoobservehowhouse pricesreactto
effectiveness of disclosure-based regulation in the context the introduction of new information as well as how home
of environmental emissions. Pollution is, afterall, the clas- ownersvalue changes intoxic releases.This approachhasa
sicexampleofanexternality.Informingcommunitiesabout number of advantages over the cross-sectional hedonic
toxic emissionsin theirneighborhood isquite differentthan models used in many earlier studies.3 Our regressions use
giving employees data about hazards in the workplace or recently available, quality-controlled house price indexes
disclosing nutritional and fat content of prepackaged foods. based on repeat sales. These indexes, available at the ZIP
Inthelattertwo cases, consumers or employees canchoose code level, are quite accurate and avoid the measurement
to avoid a product or job if the price of the food, given its errorproblemsofmorecommonlyusedmediansalesprices.
nutritional and fat content, is too high, or the wage is too (SeeCase& Shiller, 1987, and Case& Mayer,1996.)Also,
low, given the workplace risks. Residents who live near a the (cid:142)rst-differences speci(cid:142)cation implicitly deals with the
plant, however, facesigni(cid:142)cant costs in leaving aneighbor- omittedvariableproblemthatcanleadtobiasedcoef(cid:142)cients
hood where a plant releases high levels of emissions; their in a cross-sectional regression. Environmental variables
homes may suffer from a decline in value. Whereas em- maybecorrelatedwithunobserved town (cid:142)xedeffects(such
ployers or food manufacturers may care about a decline in as proximity to manufacturing facilities or major polluters,
sales, a manufacturer may not care about the decline in the quality of housing, the amount of park space, or other
property values in the surrounding area and may, in fact, amenities).One cannever be surethat the coef(cid:142)cienton an
bene(cid:142)t from such a decline if land becomes cheaper for environmental variable isdriven by a distaste for pollution,
future expansion. Under the Coase theorem, it is well rather than the implicit value of some other amenity that is
understood that local community pressure will only disci- correlated with pollution. In the empirical work, below, we
pline a plant’s emissions level if: (1) most members of the show thatacross-sectionalhedonic regressionwouldobtain
community care about the pollution, (2) costs of collective a quite different conclusion than our event study ((cid:142)xed-
action are low, and (3) communities can get around the effects) approach.
free-rider problem in gathering a coalition. Another potential dif(cid:142)culty in using house prices to
TheTRI provides a unique opportunity to evaluate some assess the impact of the TRI is that we do not observe
important assumptions that underlie community right-to- community information and expectations regarding toxic
know types of legislation. In particular, how do communi- releases. If communities know the level of releases in their
tiesand households reacttoinformation about environmen- neighborhood prior to the introduction of the TRI, house
tal amenities? To what extent is this information news, and prices should not change with the introduction of the
how do localities value changes in those environmental TRI—no new information is bring provided. Similarly, if
amenities over time? Have declines occurred in places communities anticipate the future path of toxic reductions,
where political action is least costly or in communities that those reductions should be capitalized in advance of the
have a strong aversion to pollution? If communities do not actual reported reductions. A failure to (cid:142)nd any capitaliza-
value the information, or cannot use itef(cid:142)ciently,theeffec- tionofTRIinformationonhouse pricesineithercasecould
tiveness of community right-to-know laws as a standalone be misinterpreted as showing that communities do not care
regulatory instrument is drawn into question. about toxic emissions. We approach this problem in three
In this paper we explore the reaction to TRI reporting in ways. First,weuse dataonnewspaper readership to control
Massachusetts between 1987 and 1992. Reported toxic for differential local access to information about toxic
releases in Massachusetts are larger on average than in the releases. Next, we attempt to model expectations directly,
rest of the nation, and percentage reductions in toxic re- and explore whether house prices respond to deviations
leases have been close to the national average. A state from (modeled) expectations. Finally, recognizing the dif-
environmental regulation introduced in 1989, called the (cid:142)cultyinfullymodelingexpectations,weexploretheextent
Toxics Use Reduction Act, reinforced and supplemented to which changes in house prices lead announcements of
TRI reporting requirements for Massachusetts manufactur- changes in toxic releases, as would be the case if commu-
ingplants(aswellasanumberofnonmanufacturing plants). nities anticipated future changes in emissions.
To understand the impact of TRI information, we use an Our primary (cid:142)nding is that information about toxic re-
eventstudy methodology thatestimatesthecapitalizationof leases had little impact on local house prices. This result is
environmental amenities on house prices. We consider sev- inconsistent with thehypothesis that community reactionto
the TRI has led to large declines in toxic releases. In
2Apresidential memo dated October 26, 1993 provides evidence that particular,we(cid:142)ndthat(1)poorer,bluecollarareasaremore
theadministration believes in the ef(cid:142)cacy of theTRI.Itstates: “Sharing
vitalTRIinformation withthepublichasprovided astrongincentive for
reduction inthegeneration, and, ultimately, release into theenvironment 3Somerecentexceptions areBui(2002), KonarandCohen(1997), and
of toxic chemicals. Since the inception of the TRI program, reported Hamilton (1995), which use event studies based on stock market valua-
releases to the environment under TRIhave decreased signi(cid:142)cantly.” tions. These are discussed further in section III.
REGULATION AND CAPITALIZATION OF ENVIRONMENTAL AMENITIES 695
likely to have toxic emissions and (2) larger reductions in requires thatcommunities prepareemergencyproceduresto
toxic emissions occur in higher-value ZIP codes and ZIP deal with the accidental release of any toxic substance
codes with higher initial releases. However, (3) reductions known to be present in the area. This requires (cid:142)re(cid:142)ghters,
in releases are unrelated to any political economy factors hospitals, and the police to know both the storage location
that might relate to the ability or willingness of a commu- of toxic substances in their community and how to handle
nityto organize against majorpolluters.Whenmeasuredby different types of toxic substances in emergencies.
the initial level of toxic releases reported in 1987, (4) the The second motivation of the EPCRA through the TRI,
introduction of TRI reporting had virtually no effect on was to reduce toxic releases without formally regulating
housing prices, and—even more surprisingly—(5) subse- polluters. Up until that point, toxic releases had not been
quent reductions in aggregate reported emissions between touched directly by any existing environmental regulation.5
1987 and 1990 have no signi(cid:142)cant effect on house prices, Regulators hoped that by forcing private (cid:142)rms to disclose
either in the aggregate or when disaggregated into the most their toxic releases and by providing the public with that
hazardous types of chemicals or the most noxious air information, (cid:142)rms’polluting behavior would be affected.
emissions.Thestandarderrorsaresuf(cid:142)cientlysmallthatwe UnderEPCRAsection11023, afacilitymustreporttothe
can reject, with 95% con(cid:142)dence, the hypothesis that de- TRI if it is a manufacturing plant (SIC 5 2000–3999) with
clines in toxic releases of one standard deviation above the more than 10 full-time employees that either uses or man-
mean are associated with more than a 0.5% increase in ufactures more than a threshold level of any of the listed
house prices. Finally, informational differences about TRI toxic substances.6 Plants are required to (cid:142)le their reports
or expectations do not appear to explain these results. We with their state EPA. This information is then collected by
show that(6) theabove (cid:142)ndings hold even ifwelook atthe the federal EPAand is made available to the public. Plants
unexpected information in TRI releases, (7) changes in must(cid:142)leaseparateformforeachtoxic substance forwhich
house prices do not forecast changes in toxic emissions, as they emit more than the speci(cid:142)edthreshold reporting level.
might be expected if communities anticipated increases or Threshold reporting levels differ for manufacturers of a
reductions in toxic releases, and (8) these results persist toxic substance and also differ across substances. Thresh-
even in communities with high newspaper readership. olds can also change over time.
The paper is organized as follows. In section II we Between 1988 and 1999 EPA reports that toxic releases
describe the TRI and provide background on reported TRI fell by approximately 40%. In 1999, approximately 23,000
releases over time. Section III provides an overview of the differentfacilitiessubmittedreportstotheTRI.Nationwide,
existing literature that examines the use of property values more than 2.3 billion pounds of toxic releases were re-
to capture the value of different community amenities, and ported.7 These releases include extremely toxic substances
sectionIVdescribesthedata. SectionsVandVIcontainthe
suchasarsenic,mercury,anddioxin,aswellasmorebenign
empirical results, and the (cid:142)nal section provides aninterpre-
substances (at least in small quantities) such as ammonium
tation, together with concluding comments and discussion
sulfate,acetone,andsulfuricacid.Itisimportanttonotethat
of further avenues for research.
all of these substances are considered to be hazardous to
human health at fairly low levels of concentration and
II. Background exposure.
The TRI is meant to provide information to the public.
Before 1986, when the Superfund law was revised asthe
The of(cid:142)cial release of TRI data is made by the EPA.
Superfund Amendments and Reauthorization Act (SARA),
Initially, hardcopy versions of the yearly releases could be
there was no systematic tracking of toxic releases in the
obtained directly from the EPA(at no cost) by individuals.
UnitedStates.UnderSARA,theEmergencyPlanningCom-
Now,thedataaremadeavailable on CD-ROM(ordiskette)
munity Right to Know Act (EPCRA) was introduced.4
and on the Internet from the EPA or other environmental
Included in the EPCRA is a provision known as the Toxic
sources, for example, the Right-To-Know Network (RTK-
ReleaseInventory.TheTRIrequiresmanufacturing(cid:142)rmsto
Net). The RTK-Net started operations in 1989 and is oper-
reporttheirreleasesoflistedtoxicsubstances totheEPAfor
ated by the OMB Watch and Unison Institute (Washing-
public disclosure.
ton, DC). The TRI provides information on all reporting
The motivation behind EPCRA was twofold. In part,
EPCRA was a response to a number of environmental
5Thereexist airpollution standards forhazardous airpollutants known
disasters involving toxic substances, the best known of
as the National Emissions Standards for Hazardous Air Pollutants
which occurred in Love Canal, New York, and Bhopal, (NESHAP),butitisuniversallyagreeduponthatthisparticularregulation
India. What became evident after those episodes was that, hasbeen completely unsuccessful.
6During our period of study, there were astable set of approximately
because residents were often unaware of what toxic sub-
300listedtoxicsubstances. Thisnumberhasincreased signi(cid:142)cantlysince
stances werebeing used by local plants, communities were 1995 to over 600 listed substances. Several substances have also been
unprepared to deal with accidental releases. The EPCRA delisted over theyears, although notduring our sample period.
7This includes emissions only from the original industries that were
required to report in 1987 and includes emissions from chemicals that
4The EPCRAis also referred toasTitleIIIof SARA. were listed after 1995.
696 THE REVIEW OF ECONOMICS AND STATISTICS
facilities as reported, including name and address of the Superfund sites on median housing prices in New Jersey.
facility, type of chemical released, and amount released (in They focus their attention on 77 New Jersey communities
pounds). The hardcopy version of the data also include thathave Superfund sites and490communitieswithout any
summary statistics. After 1993, data were provided on Superfund sites between 1980 and 1988. The authors (cid:142)nd
whether the substance was carcinogenic or had develop- some support for the hypothesis that Superfund hazardous
mental or reproductive consequences. waste sites depress housing prices (relative to the control
The primary source of information to households, how- community with no Superfund sites),particularly if located
ever, was probably not through the raw data release itself, in rural communities and in communities that had the
but from the media. Media accounts of TRI releases have highest rate of price increases in the preceding (cid:142)ve-year
been numerous since TRI data have become available. A period. Surprisingly, however, the level of risk associated
simple count of news reports in major newspapers between withthehazardouswastesitewasnotfoundtobeassociated
1988 and 1995 on LexisNexis wasover 430. Someof these with changes in sales prices. This (cid:142)nding is consistent with
reports are very detailed in nature. The Los Angeles Times, the hypothesis that, although communities maybe awareof
forexample, provided their readerswith alistofthe“Lead- the existence of aSuperfund site in their locale, they do not
ersinToxic Releases,”8which included asummaryofwhat have the ability to evaluate the relative dangers associated
substances werebeing released, the health consequences of
with higher- or lower-risk sites. A recent paper by Gayer,
exposure to the substances, and thenames and addresses of
Hamilton, and Viscusi (1998), however, (cid:142)nds that commu-
the facilities responsible for the emissions. In addition,
nities are able to respond to differences in cancer risk, as
community newspapers, which do not show up in Lexis-
measuredbychangesinhouseprices,whenthatinformation
Nexis,areawell-knownsourceoflocalinformationonTRI.
is provided to them.
An informal survey of local community newspapers in
Both the methodology and the interpretation used by
Massachusetts suggests that therewerenumerousstories on
Ridker and Henning (and, consequently, others) have been
TRI during 1987–1992. However, these local newspapers
controversial, spawning a large number of studies that
do not store their past stories in an electronic medium such
support and that refute their results. [See, for example,
asLexisNexis,makingitnearlyimpossible toobtainamore
Freeman (1971, 1974), Small (1975), Polinsky, Mitchell,
precisemeasureoftheircoverageduring oursampleperiod.
and Shavell (1975), and Harrison and Rubinfeld (1978).]
Regardless of the controversy, hedonic studies on property
III. PreviousLiterature values of the type that Ridker and Henning pioneered are
now commonly used to measure how changes in environ-
The (cid:142)rst work to incorporate environmental amenities
mental amenities are valued. Smith and Huang (1995)
into the study of residential property values is Ridker and
conducted a meta-analysis of 37 studies to evaluate the
Henning (1967). Controlling for a number of property- and
robustness of this methodology and (cid:142)nd that there is a
region-speci(cid:142)c characteristics, they regress mean property
consistent relationship between the marginal willingness to
valuesbyCensustractonairpollutionmeasures.Ridkerand
payforareduction inairpollution andthelevelofpollution
Henning (cid:142)nd that air pollution, as measured by sulfate
in the local region. Kiel and Zabel (2000) provide more
concentration, has a signi(cid:142)cant effect on property values—
recent estimates for the marginal willingness to pay for air
more so than measures of school quality and travel time to
quality infourmajorcitiesintheUnitedStates.Theauthors
the center of the city. Furthermore, they estimated that if
estimatethatthebene(cid:142)tsofachieving theNationalAmbient
sulfation levels were reduced by at least 0.25 mg but not
AirQualityStandardsbetween 1974 and 1991 in those four
morethan0.49mg,households intheSt.Louismetropolitan
cities are between $171 million and $953 million.
statistical area would be willing to pay as much as
The vast majority of these studies use a cross-sectional
$82,790,000 for that improvement in air quality.
hedonic methodology inwhichtheyregresshouse priceson
Since 1967, there have been several other empirical
various observed attributes plus an environmental variable
studies that have found evidence that environmental amen-
within a given city. As Gyourko, Kahn, and Tracy (1999)
ities are capitalized in property values. Bednarz (1975)
point out, “...spatial sorting on unobservables” may
examines the relationship between individual selling prices
presentaproblem.Afterall,“Ifsuppliers build nicerhomes
of land and aggregated values (to the census tract level) of
in termsofunobservables in the nicer partsof thecity,then
air pollution measures in Cook County (Chicago), Illinois.
the econometrician will overestimate the value of the QOL
Bednarz (cid:142)nds that pollution decreases property values and
[quality of life]. Moreover, low environmental quality
that the correlation between particulate matter and the
within a neighborhood may proxy for low quality of hous-
proportion of blacks in a community is 0.5, suggesting at
ing structure” (p. 1438).
leastthepossibility of“environmental injustice.”Greenberg
A few studies look at changes over time in the capitali-
and Hughes (1992) study the impact of hazardous waste
zation of news about a speci(cid:142)c amenity, such as highway
noise in theSeattlesuburbs (Palmquist,1982), PCBs(Men-
8Hudson, Berkeley, Los Angeles Times, December 5, 1991 (Glendale
Section, part J; p. 1,column 2). delsohn etal.,1992), awasteincinerator (Kieland McCain,
REGULATION AND CAPITALIZATION OF ENVIRONMENTAL AMENITIES 697
1995), orahazardous wastesite(Kohlhase, 1991),avoiding 1980 and 1990 Censuses and the Commonwealth of Mas-
the problem of unobservable quality. Palmquist (1982), in sachusetts. The separate data sets are linked either by ZIP
particular, has a nice discussion of the potential advantages code or by community name.
of such an approach. All of these studies (cid:142)nd that changes Plant-level data on toxic emissions are taken from the
in news about the toxicity of the site are capitalized into TRI.9 Between 1987 and 1993, over 2000 different toxic
house prices.Oneshould use cautioninapplying theresults emission records were (cid:142)led annually in an average of 231
of these studies more generally, however, as most these different ZIP codes in Massachusetts. Over the sample
studies look at speci(cid:142)c sites that usually received much period, an average of 24,876,500 lb. of toxic substances
media attention. were released into the environment every year. We aggre-
Probably themostreliableestimateson thecapitalization gate the emissions data up to the ZIP code level and focus
of environmental amenities in house prices, however, come on the sum of environmental releases by substance, under
from a recent study by Chay and Greenstone (2000), who the assumption that communities have a similar valuation
show that a one-unit reduction in suspended particulates fortoxicreleasesthatoccurthroughdifferentenvironmental
resulted in a 0.4%–0.5% increase in house prices. Unlike media.10 However, we create separate categories for sub-
previous papers, Chay and Greenstone use regulatory stancesthatarecarcinogenicorhaveadversedevelopmental
changes during the 1970s as instruments to control for or reproductive effectson humans.11Summarystatistics are
potentially endogenous changes in emissions.
provided in Table 1. ZIPcodes that do not report any toxic
Below, we examine the release of information about releases are given a value of zero.12
actual releases under TRI, which allows us to examine
Atotal of 144differenttoxic substances werereported as
theeffectof informationabout pollution on house values.
TRI releases between 1987 and 1992 in Massachusetts. Of
Three recent studies use an event study approach to
these, 18 (12.5%) were known to be carcinogenic, 21
evaluate the stock market response to TRI information.
(14.6%) were known to have adverse reproductive or de-
Hamilton (1995) (cid:142)nds that (cid:142)rms with higher reported
velopmental consequences, and 12 (8.3%) were known to
releases have larger abnormal negative returns. Konar
have both carcinogenic and developmental or reproductive
and Cohen (1997) model expectations and (cid:142)nd that (cid:142)rms
consequences.13
with unexpectedly high releases have lower stock market
Between 1987 and 1992, reported toxic releases in Mas-
returns. Both studies conclude that (1) the TRI provided
sachusetts fell by 70%. Similar reductions are found for
new information to the market and that (2) the stock
carcinogenic releases (a 60% decrease). Substances with
market responded to that information. In contrast, how-
known adverse developmental or reproductive implications
ever, Bui (2002) claims that there may be an error in the
decreased aswell,but toa lesserextent (19%).Thenumber
estimation of the standard errors used by Hamilton and
of records actually (cid:142)led(separate releases) in theTRI went
by Konar and Cohen, which casts doubts on the robust-
from 2129 to 1654, a decline of22%.Theaverage reported
ness of their (cid:142)ndings. Bui (cid:142)nds that for petroleum com-
singletoxicreleasein1987inMassachusettswas32,636 lb.
panies small negative abnormal returns exist only for the
The amounts released ranged from a low of 1 lb. to a high
initial TRI announcement of 1987 emissions and that
of 1,019,600 lb. Both the mean release and the range fell
those returns are not signi(cid:142)cantly different from the
dramatically in 1992 to 9674 lb. with a range from 1 lb. to
returns for nonreporting petroleum companies in any
502,157 lb.
period.
The house price indexes used in this paper are obtained
Finally, a recent study by Oberholzer-Gee and Mitsunari
from Case, Shiller and Weiss, Inc. and are estimated using
(2002) looks atTRI-emittingplantsinthePhiladelphia area
using detailed location data and (cid:142)nd that, if anything, the
prices of houses located nearest TRI-emitting plants may 9Itshould benotedherethattheTRIprovides datathatisself-reported
by the polluting (cid:142)rms and is not veri(cid:142)ed (or easily veri(cid:142)able) by inde-
have risen a little bit on the initial announcement of TRI
pendent third parties. There may be reason to believe that the data may
emissions and the initial announcement had no impact not, in fact, be very accurate. Systematic over- or underestimation of
beyond aquarter of a mile.This study has theadvantage of actual releases, however, does not appear to be a problem. For our
purposes, whatevermeasurementerrorsmayexistinthereporteddataare
using detailed house locations, but has a much smaller
oflittleimportance,becauseitisthereportedTRIvaluesthatareprovided
geographic area and is limited to the (cid:142)rst year of TRI tothepublic,andpresumably thatistheinformationonwhichhouseholds
announcements. The results of that paper are complemen- base their response.
10Thesum ofenvironmental releases equals thesum of air1water1
tary with what we (cid:142)nd below.
land releases. In comparison with the so-called criteria air pollutants,
toxic releases have a more localized effect on their surroundings, so
studying their effects at the ZIPcode level isnotunreasonable.
IV. The Data 11Onlysubstances thatare“known”bytheEPAorCaliforniaEPAtobe
carcinogenic orhavedevelopmental orreproductive hazardsweretagged.
We use data from several different sources, including: 12In these ZIP codes, either toxic releases fall below the threshold
plant-level data on toxic emissions reported under the TRI reportinglevel(andmaybeequaltozero),orplantsfailtoreportreleases.
13Alistofalltoxicsubstances coveredundertheTRIthatwerereported
from1987 to1992; repeat-saleshouse pricedatafrom1982
as releases in Massachusetts between 1987 and 1993 may be obtained
to 1993; and various community characteristics from the from theauthors.
698 THE REVIEW OF ECONOMICS AND STATISTICS
TABLE1.—SUMMARYOFTRIRELEASESa
UnitedStates Massachusetts
Aggregate Aggregate Carcinogenic Developmentalor Noxious
Year Releases Releases Releases ReproductiveReleases Releases
1987 16,314,321,854 50,029,900 5,491,783 738,390 2,614,877
1988 5,676,700,269 31,791,507 4,712,841 442,136 2,274,411
1989 4,446,143,038 26,379,909 4,121,111 472,059 1,313,492
1990 3,751,675,394 22,210,877 2,936,752 445,278 1,574,979
1991 3,499,710,918 18,132,203 2,411,321 466,084 565,767
1992 3,319,222,779 15,445,165 2,207,644 600,019 1,060,847
Change
1987–1992 280% 270% 260% 219% 259%
aAllreleasesaremeasuredinpounds.
a variation on the weighted repeat sales methodology (cid:142)rst housing values, and age variables. School test scores and
presented in CaseandShiller (1987).14Because theindexes town unemployment rates, spending on health and welfare,
involve repeat sales of the same property, they are not andmanufacturingemploymentareobtainedfromtheCom-
affectedbythemixofpropertiessoldinagiventimeperiod monwealth of Massachusetts, land available for new con-
or differences in average housing quality across communi- struction fromtheUniversity ofMassachusetts, anddataon
ties. In Massachusetts, indexes were estimated for 247 ZIP new construction from the U.S. Department of Commerce.
codes with a suf(cid:142)cient number of transactions to obtain
reliable estimates after 1982. All price changes are mea-
V. Where Are the ToxicEmissions, and Where do the
sured fromthesecond quarter of eachyear tocorrespond to
Declines Occur?
thetimingofthereleaseofTRIdata.Nominalhousesprices
in Massachusetts towns increased by an average of 176%
Webegin theanalysis by documenting thecharacteristics
from 1982 to 1989, and then declined by 10% in the next
of neighborhoods that surround plants that produce toxic
(cid:142)veyears. However,the priceincreasesand decreaseswere
emissions. (SeeTable2,leftpanel.) Notsurprisingly,plants
quite unevenly distributed across communities during this
that emit TRI-listed substances tend to be located in com-
period, ranging from 132% to 330% in the earlier time
munities with lower median incomes, house values, and
period and between a38% decline and a4% increasein the
school assessment test scores than communities with no
later time period. Earlier work (Bradbury, Mayer, & Case,
reportedtoxicemissions.Communitieswithtoxicemissions
2001) shows that shifts in economic variables such as em-
are smaller and have a higher percentage of workers in
ployment, aggregate school enrollments, demographics, and
manufacturing, but are quite similar in age distribution and
changes in (cid:142)scal factors such as Proposition 21 areeconomi-
percentage ofminorityresidents.Thuschildrenarenomore
2
cally important and statistically signi(cid:142)cant in explaining the
or less likely to live in neighborhoods with higher toxic
cross-sectional variation in changes in house prices.
emissions. In addition, communities with higher toxic re-
We also use data on newspaper readership to explore the
leases have residents that are less likely to be college-
extent to which capitalization depends on information. We
educated,andmorelikelytoberegisteredasDemocrats,but
obtain average newspaper readership from 1995 to 1998
do not differ in their newspaper readership. More of the
fromtheAuditBureauofCirculations.15Although thedates
plants are located not in the Boston metropolitan area, but
of the data do not exactly correspond to the dates of our
further out from the city, suggesting locations in manufac-
sample, we would expect that newspaper readership will
turing subcenters such as Lowell, Lawrence, and New
remain stable over time, or at least the rank order of
Bedford, rather than in rural areas or downtown Boston. In
localities will not change much.
terms of housing appreciation, the groups in the left and
Demographic data are taken primarily from the 1980 or
right columns appear to be quite similar, both before and
1990 decennial Censuses. In many cases, data are only
after TRI reports began in 1987.
available at the town level, and are attributed to ZIP codes
Next, we divide communities that reported positive TRI
onthebasisoftown.Thesedataincludemedianincomeand
emissions in 1987 into two groups based on their subse-
quent change in emissions. The right panel in Table 2
14ThemethodusesarithmeticweightingdescribedbyShiller(1991)and summarizes the characteristics of communities whose
is based on recorded sales prices of all properties that pass through the
change in emissions between 1987 and 1992 was below
marketmorethanonceduringtheperiod.TheMassachusetts (cid:142)lecontains
over 135,000 pairs of sales drawn between 1982 and 1994. First, an averageforall(Massachusetts)TRI-reportingcommunities.
aggregate index was calculated based on all recorded sale pairs. Next, Notice that reported toxic emissions actually rose in the
indexes were calculated forindividual jurisdictions.
typical community within this group, indicating that de-
15Source:Circulation DataBank,NewYork:AuditBureau ofCircula-
tions (1999). clines in emissions werenot uniform across locations. This
REGULATION AND CAPITALIZATION OF ENVIRONMENTAL AMENITIES 699
TABLE2.—MASSACHUSETTSTOXICEMISSIONSBYZIPCODEFORSELECTVARIABLES
ChangesinEmissions1987–1992
Emissionsin1987byZIPCode byZIPCode
SmallReductions
Nonzero Zero orIncreased LargeReductions
Emissions Emissionsa Emissions inEmissions
Statistic Mean Std.Dev. Mean Std.Dev. Mean Std.Dev. Mean Std.Dev.
AveragereportedTRI(lb.) 218,213 407,521 41,165 89,770 397,863 513,701
AveragechangeinTRIin1987–1992(lb.) 24,059 65,896 2287,408 404,328
Medianhouseholdincomein1980(000s) 18.9 4.8 21.7 6.8 18.5 4.7 19.2 4.9
Medianhousepricein1980(000s) 47.9 13.5 56.5 22.7 47.2 12.9 48.6 14.0
Townpopulationin1980 49,461 75,858 52,919 118,580 52,013 77,631 46,871 74,503
Percentageofminorityresidentsin1980 0.04 0.06 0.04 0.07 0.05 0.07 0.03 0.05
Avg.dailynewspapercirculationpercapita,1995–
1998 0.29 0.12 0.28 0.11 0.27 0.99 0.30 0.14
Percentageofresidentswithacollegedegreein1980 0.16 0.09 0.23 0.13 0.16 0.09 0.16 0.10
PercentageofregisteredvoterswhoareDemocrats 0.43 0.14 0.35 0.015 0.43 0.14 0.43 0.014
Percentageofresidentsaged35–60in1980 0.27 0.03 0.28 0.04 0.27 0.03 0.28 0.03
Percentageofresidentsunderage21in1980 0.35 0.03 0.35 0.04 0.35 0.03 0.35 0.03
Averagemathandreadingassessmenttestscore 2588 179 2679 185 2575 189 2600 169
DummyvariableifintheBostonmetroarea 0.36 0.48 0.52 0.50 0.41 0.49 0.32 0.47
DistancefromBostonifintheBostonmetroarea 20.3 16.5 22.8 17.4 17.6 15.7 23.0 17.1
Percentagechangeinhouseprices,1982–1987 1.58 0.17 1.55 0.23 1.58 0.19 1.58 0.15
Percentagechangeinhouseprices,1987–1989 0.08 0.06 0.07 0.06 0.08 0.07 0.08 0.06
Percentagechangeinhouseprices,1989–1994 20.11 0.07 20.09 0.08 20.11 0.07 20.10 0.07
Percentageofresidentsinmanufacturingsector,1980 0.34 0.10 0.29 0.10 0.33 0.10 0.36 0.11
Percentagechangeinmanufacturingemployment
between1987and1992 20.18 0.15 20.14 0.17
Healthandwelfarespendingin1987($millions) 3.7 16.6 7.2 27.9 4.0 17.0 3.2 16.5
Percentagechangeinhealthandwelfarespending
between1987and1992 0.31 0.78 0.26 0.51
N 137 110 69 68
aZIPcodesthatdonotreportanyTRIreleasesbutmayhaveactualemissionsgreaterthan0.
(cid:142)nding casts doubt on the hypothesis that declines in TRI 3,aremostlyconsistentwiththe(cid:142)ndingsabove.Holdingother
emissions are strictly due to (cid:142)rms intentionally overreport- factors constant, TRI-emitting plants are more likely to be
ing emissions in 1987—over one-third of the ZIP codes in locatedinpoorer,Democratic-voting communities,withmore
this sample experienced an increase in reported emissions. middle-aged residents, and further from Boston. In other
If community activism were an important factor in con- words, these are solid blue collar communities.
tributing to declines in emissions, we might expect greater Yetfewoftheabovefactorsareparticularlycharacteristic
declines in toxic emissions in communities with more of communities with the largest declines in emissions. (See
college-educated or higher income residents, in communi- column2.)Infact,onlythemedianhouse priceiscorrelated
ties with more children, or in places with a higher percent- withchanges intoxicreleases—greaterdeclinesoccurredin
ageofregisteredvotersorhighernewspaperreadership.Yet, higher-priced communities. Political economy variables or
the two groups differ little in their average income, voting factors that might relate to the ease or probability of polit-
patterns, education, age distribution, or any other factors ical activism do not appear to matter. The third column
that might be related to political or community activism. con(cid:142)rms a strong trend towards reduced emissions in areas
Communities that had the largest absolute reductions in with the highest initially reported releases. When control-
releases tended to have slightly higher house prices and ling for initial releases, the coef(cid:142)cient on median house
lower minority populations, were more likely to be located price is no longer statistically different from 0.
in the Boston area, and had a work force that was more
heavily concentrated in manufacturing. The data also show
VI. Estimation and Results
very few differences between the communities in their
population growthorhousing appreciationduringanyofthe Wenowturntohouse pricesfordirectevidenceastohow
periods in question. home buyers value the change in emissions that occurred
Because the correlations above are based on simple com- after the beginning of TRI reporting. To the extent that
parisons of means, we estimate regressions to identify the publicpressureisrelatedtothesubsequent fallinemissions,
characteristics of communities where TRI-emitting plants are house prices should have increased in communities whose
located, and where emissions fell furthest. These regressions local plants successfully cut toxic releases. Even absent
should be interpreted in a strictly descriptive manner, not as public pressure, evidence of capitalization will help show
suggestinganyformofcausality.Theresults,reportedinTable how much thepublic values changes in reported emissions.
700 THE REVIEW OF ECONOMICS AND STATISTICS
TABLE3.—ASSOCIATIONSOFTRIEMISSIONS
(1) (2) (3)
ChangeinTRI ChangeinTRI
Emissions, Emissions,
TRIEmissions,1987 1987–1992 1987–1992
Tobit OLS OLS
DependentVariable Coef. Std.Err. Coef. Std.Err. Coef. Std.Err.
Medianhouseholdincomein1980(000s) 249 25.8 30.9 26.5 22.67 7.87
Medianhousepricein1980(000s) 3.9 6.1 213.1 6.9 0.68 2.08
Townpopulationin1980 20.00043 0.00067 20.00027 0.00064 20.00015 0.00019
Percentageofminorityresidentsin1980 2394 983 286 874 2181 257
Percentageof1980residentsworkinginmanufacturing 763 465 425 426 253.8 125
PercentageofregisteredvoterswhoareDemocrats 801 370 2247 331 35.2 97.9
Percentageofadultswhoareregisteredtovote 2756 601 390 542 48.1 159.9
Averagedailynewspapercirculationpercapita,
1995–1998(000s) 356 308 2178 266 2227 786
Percentageofresidentswithacollegedegreein1980 259 942 449 908 74.2 267.5
Percentageofresidentsunderage21in1980 780 1,496 21250 1483 499 439
Percentageofresidentsaged35–60in1980 4,618 2,036 22,669 1,981 2574 586
Averagemathandreadingassessmenttestscore 0.3 0.36 20.39 0.34 20.13 0.10
DummyvariableifintheBostonmetroarea 2117 87 126 84 29.7 24.9
DistancefromBostonifintheBostonmetroarea 22.8 8.5 228 7.8 21.57 2.29
(DistancefromBostonifintheBostonmetroarea)2 0.51 0.18 0.017 0.17 0.009 0.049
TRIemissionsin1987(000s) 20.76 0.02
Constant(31023) 21,813 1,281 1,940 1,171 393 347
Loglikelihood 22033.19
R-Square 0.13 0.93
Numberofobservations 247 137 137
A. Capitalizationof Toxic Releases in House Prices itan area, even in the long run.17 Finally, local economic
factors will also in(cid:143)uence house prices, although they may
In this context, the equilibrium price of housing in com-
also be determined simultaneously with house prices.
munity i and base year t can be represented as16
Our estimation procedure relies on an event study meth-
P* 5 a 1a ~environmental amenities! odology, a variant of the process developed by Case and
it 0 1 it
Mayer (1996). In this context, we look for evidence as to
1a ~fixedamenities!
2 it how changes in toxic releases are capitalized into house
(1)
1a ~housing stock! prices. A simple (cid:142)rst-differencing of equation (1) between
3 it
the base year t and a subsequent year t suggests that
1a ~economic factors! 1e .
4 it it changes in house prices should be a function of changes in
In equation (1), a represents the value of environmental (cid:142)xed amenities, changes in environmental amenities,
1
amenities;inthiscase,toxicreleasesthatarereportedunder changes in the supply of units, and changes in local eco-
TRI. The coef(cid:142)cient a is the value to the marginal home nomic factors:
2
buyer of (cid:142)xed amenities such as location and community
characteristics. The coef(cid:142)cient on the size of the housing DP 5 b 1b ~Denvironmental amenities!
i 0 1 i
stock (a ) is expected to be negative as long as the supply
3
1b ~Dfixedamenities!
of new units isnot perfectlyelastic.Zoning ordinances that 2 i
(2)
set minimum lot sizes, limit redevelopment at higher den- 1b ~Dhousing stock!
3 i
sities, and place restrictions on setting up newcommunities
1b ~Deconomicfactors! 1m,
ensure an upward-sloping supply curve within a metropol- 4 i i
16Epple(1987)andBartick(1987)providecritiquesofthebasichedonic where D represents the change in the value between year t
equation in Rosen (1974), speci(cid:142)ed above in equation (1), based on the and the base year t.
likelihood thathouseholds simultaneously choosequantities andpricesof
housing and land characteristics. Both papers suggest instruments from
suppliers and households that are not available in most applications, 17SeeFischel (1990) for asummary of the literature on zoning. Ham-
including ours. Epplealso suggests thatidenti(cid:142)cation of hedonic models ilton(1975)showsthatunderaseriesofrestrictiveassumptions, including
can be reached under a set of strong, but not completely unreasonable, perfectly elastic supply and zoning ordinances that control the exact
assumptions.Thesubsequentliteraturehasgenerallyacceptedrepeat-sales quantity of housing consumption, there is no capitalization of local
models as being a good approach to estimate capitalization in many amenities andthusa ,a ,anda areequaltozero.AsnotedbyFischel,
1 2 3
contexts, including environmental amenities and school quality. these assumptions are not satis(cid:142)ed empirically.
REGULATION AND CAPITALIZATION OF ENVIRONMENTAL AMENITIES 701
Modeling changes ratherthanlevelshas theadvantage of DP 5 g 1g ~Denvironmental amenities!
i 0 1 i
removing a considerable degree of (cid:142)xed-effects differences
1g ~fixedamenities!
among communities. By de(cid:142)nition, changes in many (cid:142)xed 2 i (3)
amenities, such as location and community characteristics, 1g ~Dhousing stock!
3 i
equal 0andthus dropoutofequation (2).This isimportant,
1g ~Deconomicfactors! 1m.
as the maintained assumption is that the error term m is 4 i i
t
uncorrelated with the included independent variables, in-
Environmental emissions are measured either in a single
cluding environmental amenities. For example, communi-
year to pick up an initial announcement effect, or between
ties with higher levels of toxic releases may have lower-
two years to capture the impact of changes in emissions
quality houses, fewerparks, orworseschools. Totheextent
over time.Fixedamenities,including school testscores,the
that these (cid:142)xed factorsarenotfully observed, theestimated
percentage of middle-aged households, and a location
coef(cid:142)cient on environmental amenities in a hedonic equa-
proxy,areassumedtobeconstant, soweuse thevaluefrom
tion will be biased. However, this bias does not affect
thebaseyear(t),orinsomecasesanearlieryearwhenthese
estimated coef(cid:142)cients in the difference equation (2) as long
values were taken from the U.S. Census.19 We use the
as the (cid:142)xed amenities remain (cid:142)xed over time.
supply of new housing permits as a close proxy for Dhous-
If the coef(cid:142)cients in the levels equations (a –a ) also
0 5 ing stock, but we instrument for new permits with the
remainunchanged over time,then a 5 b. Although many
i i amount ofvacantlandavailablein1984 andlaggedpermits
((cid:142)xed) amenities do not change noticeably over a two- to
to control for potential endogeneity problems.20
four-year time span, which is the period for most of our
We also face potential endogeneity problems when con-
analysis, these independent variables may still in(cid:143)uence
sidering changes in economic factors, such as (town-level)
spending changes if their effects on spending levels (their
manufacturing employment, the unemployment rate, and
coef(cid:142)cientsinthelevelequations)changeduringtheperiod.
spendingonhealthandwelfare.Thesevariableshelpcorrect
Forexample,Caseand Mayer(1996) show thatdemandfor
for a potential bias, because changes in toxic emissions
certain local characteristics can change due to such aggre-
might be negatively correlated with employment changes.
gate shocks as an aging population or increasing school
That is, (cid:142)rms that reduce output will lay off workers and
enrollments. Though their study covered a longer time
also reduce emissions, or vice versa. The bene(cid:142)cial impact
period than our analysis, we nonetheless include initial
of reduced emissions on house prices might be offset by
levels of some town characteristics in the house price
reduced demand for housing from laid-off workers. Since
regression to allow for possible changes over time in the
theprimarypurpose ofthispaperistoexploretheimpactof
coef(cid:142)cients on these (cid:142)xed attributes.
TRI emissions on house prices, we are not interested in
For example, the aging of the baby boom and the asso-
structural estimates of the coef(cid:142)cients of the economic
ciated echo baby boom has led to an increase in public
variables. Yet the economic variables might be simulta-
school enrollmentsinMassachusetts since 1990.Theresult-
neously determined with house prices, for examplethrough
ing growth in the number of households with children in employment changes in the construction sector, and thus
public schools has increased the demand for houses in their inclusion can bias the coef(cid:142)cients on the environmen-
townswithgood schools. Similarly,atown’sinitial agemix talvariables.Again,suchabiasisunlikely giventhelagsin
may be an indicator of amenities that are attractive to newconstruction andtheshort timeperiodofour study,but
speci(cid:142)cage groups. During this period, mostbaby boomers we take it seriously nonetheless.
entered the 35–60-year-old age group, raising demand for Below, we use three alternative approaches to deal with
amenities typically valued at those ages, such as town- local economic changes. First, we include the employment
sponsored day care and after-school programs, and better variables directly in the equation, recognizing that the co-
parks and playgrounds. Thus, communities with high initial ef(cid:142)cient estimates on these variables may be biased, but
concentrations of middle-aged households would be ex- expecting that such simultaneity biases might not affectthe
pected to experience a relative increase in housing demand environmental variables, especially inasmuch as we have
and, hence, house prices.18
Thus we estimate the equation below, which allows for 19Ourmeasureoftestscorescannotbecomparedacrossyears,soweuse
the value of some (cid:142)xed amenities to change over time: aninitialvalueratherthanthelastyeartocontrolforthe(slim)possibility
that changes in house prices might have affected the quality of students
living inacommunity, although such an effect isquite unlikely over the
18Theability ofjurisdictions toreplicate desired amenities andhousing short period of time used in our regressions. Also, the rank order of
types could counteract any impact of the aging of the baby boom community test scores changes little over the sample period, which is
generation oncross-sectional houseprices. Sincethebabyboom’smove- consistent withtheview thatschool quality is(cid:142)xedover shortperiods of
mentintomiddleagecouldbeeasilyforecast,anef(cid:142)cienthousingmarket time.Duetotheinfrequent occurrence ofthecensus, wealsodonothave
wouldcausepricesintownsthatappeal tobaby-boomers tohaverisenin multiple observations onthepercentage of middle-aged households.
previous periods in anticipation of baby-boomers entering the housing 20Although we are not interested in the coef(cid:142)cients on change in
market.Thisisparticularly trueoftownswithalargenumberoftrade-up housingstockandchangeineconomicfactorsforthisanalysis,wecorrect
homes, whicharevery expensive toreplicate giventhelimited supply of for potential endogeneity so as to mitigate any correlations between the
undeveloped land inmany metropolitan areas. remaining error term andenvironmental amenities.
702 THE REVIEW OF ECONOMICS AND STATISTICS
already included instruments for local supply. Second, we (p-value 0.05). Communitieswithhigher house priceshave
include a proxy for employment that is the number of lower TRI releases. In a regression with log of median
workers in the manufacturing sector in 1980, but drop the house prices in 1990 as the dependent variable, the coef(cid:142)-
potentially endogenous changes in economic factors. This cient on the log of TRI releases is negative and highly
proxywouldbeappropriateifallcommunitieshadthesame signi(cid:142)cant (p-value 0.001), suggesting that a 10% increase
proportional drop in manufacturing employment. Our third inTRIemissionsleadstoa0.14% decreaseinhouse values.
approach is to instrument for the changes in economic Though small in size, that coef(cid:142)cient remains statistically
factors with lagged changes in economic factors.Although signi(cid:142)cant even when controlling for the percentage of
laggedvaluesarenottheidealinstruments,theyaretheonly manufacturing workers in a community (p-value 0.005).
instruments that we can (cid:142)nd at the local level. Since serial Thus we can con(cid:142)rm previous (cid:142)ndings that toxic releases
correlation might be a problem that biases instrumental are negatively correlated with house prices in a cross-
variables estimation with lagged values of the endogenous sectional hedonic regression. As we will see below, how-
variables asinstruments, wealso use longer lags.Wereport ever,this resultwillnot hold upinthedifferenceestimation
estimates using the (cid:142)rst approach, but all of the results and is likely a function of unobservable variables.
below with regardto theTRI variableshold just asstrongly
when we use any of the other instrumental variables as in
C. Effectof InitialTRI Releases
the third approach.21
To begin, TableA1 in the appendix presents estimates of Webeginbysupplementing thebasic (differenced)house
the house price regressions without considering environ- price regressions from TableA1 with a variable measuring
mental amenities. The basic regression coef(cid:142)cients are of the initial TRI releases in 1987. The interpretation for the
the expected signs, are almost all statistically signi(cid:142)cant, coef(cid:142)cient on this variable is similar to that of other vari-
and are consistent with the coef(cid:142)cients of Case and Mayer. ables in an event study; it measures the effect of the
These results provide support for the hypothesis that aggre- announcement of TRI releases on house prices relative to
gate trends change the capitalized value of school quality expectations. Thus, aninsigni(cid:142)cantcoef(cid:142)cientmightre(cid:143)ect
and location over time. In particular, houses in towns with either that the public does not place a large negative value
good schools (as measured by 1988 test scores) actually on toxic releasesor that the announcement wasin line with
increased in value from 1989 to 1992, as aggregate school prior expectations.
enrollments rose following national demographic factors. Table 4 presents the regression coef(cid:142)cients on TRI vari-
House prices also grew faster in communities with better ables using a number of different speci(cid:142)cations. All equa-
access to downtown Boston and its suburbs, where job tions also include the other variables listed in Table A1,
growthwasstrongcomparedtoother partsoftheCommon- whicharenotreportedhereforreasonsofspace.Regression
wealth over this period. Local construction is negatively coef(cid:142)cientsontheseothervariableschange littlefromthose
related to changes in house prices, as anticipated. Finally, reported in Table A1. The dependent variable measures
the coef(cid:142)cient on change in the unemployment is negative house price changes over a one-year period, re(cid:143)ecting the
and signi(cid:142)cant, as expected, and the change in health and possibility that house prices adjust slowly to new informa-
welfare spending has a positive relationship with house tion. The results are quite similar if we use a two- or
prices, as might be anticipated if state transfers raise local three-year window, although these longer windows may
income, although only signi(cid:142)cant at the 90th percentile. incorporate information from subsequent TRI releases and
Controlling for the overall unemployment rate, the coef(cid:142)- thus do not provide as clean a test.
cient on change in manufacturing employment is highly Thecoef(cid:142)cientestimatesshowthatTRIreleaseshadvery
insigni(cid:142)cant. little impact on house prices over this time period. TRI
releases are made public with approximately an 18-month
lag. In this case, TRI information from 1987 was made
B. Cross-SectionalRelationshipbetweenTRI Releases
public in the summer of 1989. Thus the dependent variable
and House Prices
measures house price changes from the second quarter of
Before beginning the analysis using our differences 1989 through the second quarter of 1990, a full year. The
modeldescribedabove,weexploretherelationshipbetween top panel explores changes in house prices following the
house pricesandTRIreleasesusing thecross-sectional data initial announcement and (cid:142)nds no statistically signi(cid:142)cant
thathavebeenutilizedbymanyearlierstudies.Inparticular, impact ofthe initial announcement on house prices. Infact,
we take median house prices from the 1990 Census and both the coef(cid:142)cient and standard errors suggest that the
compare those prices to amount of toxic releases reported economic impact of TRI information is exceedingly low.
byTRIin1990.Asexpected,intherawdata,aggregateTRI The estimated coef(cid:142)cient indicates that a one-standard-
releaseshave a20.12 correlationwith medianhouse prices deviation increase in announced aggregate TRI releases
(408,521 lb. among communities reporting positive emis-
sions) leads to a 0.095% decline in house prices over two
21Thepreviousversionofourpaperreportedestimates fromthesecond
method.Allestimates areavailable from theauthors upon request. years. Even looking at a two-standard-deviation con(cid:142)dence