Economic Benefits of Environmental Clean-up in Great Lakes Area

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Put yourself in the position of a policy maker trying to decide whether or not to spend tens, or maybe even hundreds of millions of dollars to clean up a polluted river or harbor on the Great Lakes. Forty three such sites have been identified, and they’re contaminated with PCBs, heavy metals, and other industrial wastes--really nasty stuff that poses a direct threat to human health and destroys or degrades aquatic life. Among the many questions you face is whether there’s an economic benefit to be realized by such an undertaking.

Well, there is.

John Braden is a professor in the U of I Department of Agricultural and Consumer Economics who has worked in recent years to quantify that benefit.

Most recently, Braden has collaborated with economists from Georgia State University and the Northeast-Midwest Institute based in Washington DC to gauge the value to local homeowners of cleaning up sites on the Buffalo River in New York and the Sheboygan River in Wisconsin.

One way Braden and colleagues sought to do that was to collect data for housing sales in both areas for the years 2002 through 2004. Their preliminary study of this data suggests that property values of single-family, owner-occupied homes are depressed significantly by the polluted state of the rivers: between one and seven percent in Sheboygan and between six and nine percent in Buffalo. In other words, a home in the Sheboygan study area that sold for a hundred thousand dollars in 2003 would more likely have sold for between a hundred-one and a hundred seven thousand dollars if the river were not so heavily polluted. Not surprisingly, the negative effect of the pollution on property values was more pronounced nearer the rivers.

Researchers also surveyed homeowners in both study areas directly about whether they would be willing to pay more for residential properties were the pollution in the rivers cleaned up. In Sheboygan, responses to the survey suggest that area residents would be willing to pay on average ten percent more for residential properties; in Buffalo that figure was fifteen percent.

From a public policy standpoint it’s worth looking at the aggregate numbers that come out of these studies. A seven percent increase in property values for the area that was studied near the Sheboygan River would translate into a $108 million dollar increase overall. A nine percent increase in property values for the Buffalo area would mean a $140 million dollar increase overall. Such increases in property values mean increased revenue for local governments, which suffer from depressed values just as citizens do. Since local governments pay a share of clean-up costs in order to obtain state and federal assistance, any revenue increase they invest in further clean up could also bring in even more state and federal help.

Braden emphasizes that the increase in property values he and his colleagues have calculated is only one of the economic benefits to be realized by an accelerated clean-up of contaminated areas around the Great Lakes. He suggests such areas would likely also enjoy great benefits as opportunities for recreation multiply and fisheries recover.

Of course good public policy does not rest on economic factors alone. In the simplest terms, we ought to clean up our own messes. But that’s not to say we can’t enjoy it when we find out that doing the right thing pays off, too.