This project will add to the existing literature on the impact of environmental contamination on residential property values because property values are analyzed over a lengthy period of time. Specifically, existing studies have not looked at property values after cleanup has been completed. It is of questionable value to measure the benefits of cleanup without looking at post-cleanup property values. We present an economic model of hysteresis. The level of environmental quality can be considered to be a qualitative characteristic of a differentiated good market.
Consumers can choose the level of environmental quality through their choice of house.
Housing prices may include premiums for locations in areas with high environmental quality. If so, the price differentials may be viewed as implicit prices for different levels of environmental quality.