Information and Bargaining in Markets for Environmental Quality

This paper explores the role of information on residential real estate prices. Housing transactions from 1990 formed the sample frame for surveying home buyers on their knowledge of local environmental disamenities, both at the time their homes were purchased, and when the survey was conducted. Of particular interest was home buyers' knowledge of nearby landfill sites. Because of clustering of survey responses, a sample selection model that combines transaction data with 1990 census micro data was used. The results suggest that home buyers are poorly informed about disamenities, and that those who are informed bid down the price of a home.