Spatial Weights Configuration and Impact of Environmental Externalities on Housing Prices

This paper highlights, from both a theoretical and an empirical point of view, how the choice of neighborhood and spatial weight affects the direct and indirect effects of environmental housing attributes on house price in environmental hedonic models.An original empirical investigation is herein undertaken for the area of the lower Loire estuary (France), in order to illustrate and complement our theoretical analysis. The first thing it shows is that as the radius of the neighborhood increases, the spatial specification changes from the Spatial Durbin to the SLAG model, which could modify the MWTP of the environmental attribute and therefore affect welfare analysis. It shows also that the indirect effects of environmental attributes, i.e., proximity to the sea or to a noisy road, should be taken into account in hedonic environmental valuations when the matrix of spatial weights is distance-dependent.