Estimating the impact of environmental contamination on house prices: a hybrid index approach

We extend the literature on the impact of externalities by utilizing an approach based on a hybrid of hedonic and repeat-sales methods. The repeat-sales method is superior to the hedonic method when some of the key property attributes are unavailable and when the analyst can be confident that the attributes and parameters will not have changed over time. On the other hand, the hedonic method is superior when property attributes and/or the parameters change between sales. A hybrid method can combine the best features of both methods. The externality in question is TCE contamination of groundwater in Scottsdale, Arizona. The use of condominium sales allows us to assume that the major physical characteristics remain unchanged. However, we must accommodate location parameters that may be altered by urban growth and development as well as contamination.