House values, incomes, and industrial pollution

This paper analyzes the effect of polluting manufacturing facilities on the economic characteristics of nearby neighborhoods. It tests the hypothesis that communities exposed to high levels of pollution will have lower house prices and poorer residents than cleaner locations. The econometric model treats pollution and income as simultaneously determined variables. The multiple-equation, fixed effects model attempts to account for cross-section and time-varying biases. It uses Toxics Release Inventory (TRI) and census data from the 1980s for the six New England states. I employ a new measure of the change in exposure to pollution over the 1980s for census tracts. The estimates suggest that being a mile closer to a polluting manufacturing plant reduces house values by 1.9%, which is smaller than estimates from existing studies. However, the equivalent single-equation estimate suggests, misleadingly, that pollution has a positive effect on house values.