Toxic Assets: How the Housing Market Responds to Environmental Information Shocks

In 1998, a number of polluting industries, including fossil fuel power plants, were added to the list of firms publicly reporting pollution releases in the Toxics Release Inventory (TRI). This caused a large increase in reported toxic pollution, and a corresponding decrease in median housing prices of 2-3 percent in impacted areas. Contrary to prior findings that TRI information does not influence household actions, I find the additional TRI data caused households to revise priors on ambient pollution levels. This implies that, even with market-based environmental regulation, there remains a role for government as provider of information on environmental conditions.