Hedonic valuation of odor nuisance using field measurements, a case study of an animal waste processing facility in Flanders

In this paper we estimate the external cost caused by odor from an animal waste processing facility in Flanders using new odor measures based on field measurements. We compare three different ways of incorporating odor nuisance indicators into the model: distance to the odor source, continuous odor measures, and a dummy variable approach comparable to the standard procedure in hedonic price analysis of noise pollution. We argue that the dummy variable approach is best suited to estimate the external costs and we test these specifications for a dataset of about 1400 observations of house sales transaction between 2004 and 2008. Results show that houses subject to moderate and severe odor nuisance sell at a discount of about 5% and 12% respectively compared to houses without odor nuisance. The overall capitalized external cost of the odor exposure for the area of the case study was estimated to range between 6 and 56 million euro, with a central estimate of about 31 million euro. This estimate proves to be very stable over different model specifications. Compared to 1991, the external cost has almost been cut by half as a result of odor emission reducing measures taken by the facility.