Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

ECON 614 – Valuing Public Goods

Homework Assignment #2

        Instructions:

        This assignment can be undertaken in groups of no more than three students. Please answer all of the following questions as best as possible. If you have any questions please see me immediately. Partial credit will be awarded when it is earned. This assignment is due Thursday, October 28th, prior to the start of class. Homework should be turned in via e-mail as a .pdf file. You should label your homework LastNames_HW#2.pdf where LastNames is the last names of all members of the group. Your assignment should be typeset in 12pt font, double spaced and display sound grammar and spelling. Do not copy-paste R output or code directly into your homework.

        (200 Altairian Dollars): For this exercise you will need to read Kiel, K. A. and McClain, K. T. (1995) “House Prices During Siting Decision Stages: The Case of an Incinerator from Rumor Through Operation,” Journal of Environmental Economics and Management 28, 241-255, which is in our Dropbox folder. Also, the data for this paper can be accessed through the wooldridge library in R via data(kielmc). Please answer the following questions. For succinctness it is best if you create one main table that will capture all of the estimates from the various regressions you will be running.

1. Run a regression using only data for 1981 of housing prices (rprice) on being close to the location of the incinerator (nearinc). What is the main conclusion you would draw from this regression as to the incinerator’s impact on local housing prices?

2. Now run a regression using only data for 1978 of housing prices (rprice) on being close to the location of the incinerator (nearinc). What is the main conclusion you would draw from this regression as to the incinerator’s impact on local housing prices? How does this contrast with the 1981 regression results?

3. Use the findings from these two regression to compare with the discussion surrounding table III in Kiel and McClain. Note they use a continuous measure of distance whereas here I am asking you to use a discrete measure of closeness to the incinerator.

4. Now, what we really need to do is to investigate the change in the impact of a home being close to the location of the incinerator before in was installed verses after. To do this estimate a regression model using all years (1978 and 1981) with rprice as your dependent variable and including a dummy for the year 1981 (y81), location of the incinerator (nearinc) and their interaction. Your coefficient of interest is the one on the interaction. Comment on the sign and magnitude of this coefficient estimate.

5. To this regression model you just estimated add in the age of the home (age) and its square (agesq). What effect does adding in this structural characteristic of the home have on the estimated impact of the incinerator?

6. Now to the regression model you just estimated, add in distance of the home to the interstate (intst), size of the lot (land), area inside the house (area), the number of rooms (rooms), and the number of baths (baths). Again, what effect does adding in these structural characteristic of the home have on the estimated impact of the incinerator?

7. Now repeat all of the previous exercises but use price in logarithm (lrprice) instead. In this case you need to interpret your coefficient of interest as a percentage change (be sure to do this correctly). Do any of your main conclusions change?

8. Consider the model you estimated that was the regression of lrpice on y81, nearinc and their interaction. Compare the coefficient estimate on the interaction to models that either fail to include y81 or nearinc (but always including the interaction). What do you make of these differences?

9. Now, the dummy variable on being near the incinerator is to some degree arbitrary. Instead, lets focus on the exact distance, in feet, from the home to the incinerator (dist). Consider the model

If building the incinerator reduces the value of homes closer to the site, what is the anticipated sign on β2 in this model? How would you interpret β2 > 0.

10. Estimate this model. What do you conclude about the impact of the incinerator on home prices based on logarithmic distance?

11. Now add in age, agesq, rooms, baths, lintst, lland and larea. For this model what do you conclude about the effect of the incinerator on housing prices?

12. You should have notice that in the first regression (omitting the structural charac-teristics) that your estimate of β2 was positive but in the second regression (with the structural characteristics) your estimate of β2 was negative. What does this tell you about the structural characteristics that you have included?

13. For those businesses that may constitute a locally undesirable land use (LULU), explain how the work by Kiel and McClain (and what you have just done) sheds light on the issue of sustainability and profitability?