Friday, November 25, 2005

Has Superfund Been Effective Public Policy?

Two leading environmental economists have conducted a thorough study of the costly Superfund program. They conclude that the $30 billion dollars spent on hazardous waste site cleanups does not pass a cost/benefit test. Their primary measure of the benefits of hazardous waste cleanup is average home price appreciation in a vacinity around the cleanup.

It will interest me whether this paper's findings "trickle down" into the popular media? Will the New York Times pick it up for its Science Times on Tuesdays? I find that the Science Times devotes too much attention to Personalities of Nobel Laureatues and "cute" discussions of small scale studies attempting to measure treatment effects.

As discussed below the Greenstone/Gallagher study attempts to construct an ambitious nation wide "counter factual" concerning what would have been home price appreciation in areas where hazardous waste has been cleaned up if the waste hadn't been cleaned up? They can estimate this because they can identify areas that have hazardous waste but that "just missed" getting the Superfund cleanup treatment. These areas represent a real nice control group.

Critics will argue that full "land price capitalization" requires many assumptions such as full information, low migration costs, and inelastic land supply. If housing supply is elastic, then improvements in local public goods may simply lead to population growth rather than than price responses.

Friends of mine in Houston have pointed out that over the last 25 years there, more people are living in this metropolitan area but real home prices actually fallen.
Based on a migration "voting with your feet" metric, this area's quality of life has improved but based on a home price criteria you would say that the area's quality of life has declined.

But my bottom line is that Greenstone and Gallagher deserve a lot of credit for conducting a rigorous evaluation of an important and costly public policy question Their work builds on Hilary Sigman's earlier work (published in the Journal of Law and Economics) that looked at the question of which hazardous waste sites are targeted for cleanup. She showed that it isn't the sites in densely populated areas or in areas where minorities are over-represented. Thus, environmental justice is not furthered by superfund site cleanup. Instead, she showed that sites located in powerful Congressmen's districts were more likely to be cleaned up. Surprise, surprise! Still the truth must be uncovered and economists have the tools that journalists do not have to uncover these truths.

Everyone, go take a statistics class!

Does Hazardous Waste Matter? Evidence from the Housing Market and the Superfund Program

Michael Greenstone, Justin Gallagher

NBER Working Paper No. 11790
Issued in November 2005

---- Abstract -----

Approximately $30 billion (2000$) has been spent on Superfund clean-ups of hazardous waste sites, and remediation efforts are incomplete at roughly half of the 1,500 Superfund sites. This study estimates the effect of Superfund clean-ups on local housing price appreciation. We compare housing price growth in the areas surrounding the first 400 hazardous waste sites to be cleaned up through the Superfund program to the areas surrounding the 290 sites that narrowly missed qualifying for these clean-ups. We cannot reject that the clean-ups had no effect on local housing price growth, nearly two decades after these sites became eligible for them. This finding is robust to a series of specification checks, including the application of a quasi-experimental regression discontinuity design based on knowledge of the selection rule. Overall, the preferred estimates suggest that the benefits of Superfund clean-ups as measured through the housing market are substantially lower than the $43 million mean cost of Superfund clean-ups.