Can Property Values Capture Changes in Environmental Health Risks? Evidence from a Stated Preference Study in Italy and the United Kingdom

Hedonic models are a common nonmarket valuation technique, but, in practice, results can be affected by omitted variables and whether homebuyers respond to the assumed environmental measure. We undertake an alternative stated preference approach that circumvents these issues. We examine how homeowners in the United Kingdom and Italy value mortality risk reductions by asking them to choose among hypothetical variants of their home that differ in terms of mortality risks from air pollution and price. We find that Italian homeowners hold a value of a statistical life (VSL) of €6.4 million, but U.K. homeowners hold a much lower VSL (€2.1 million). This may be because respondents in the United Kingdom do not perceive air pollution where they live to be as threatening, and actually live in cities with relatively low air pollution. Italian homeowners value a reduction in the risk of dying from cancer more than from other causes, but U.K. respondents do not hold such a premium. Lastly, respondents who face higher baseline risks, due to greater air pollution where they live, hold a higher VSL, particularly in the United Kingdom. In both countries, the VSL is twice as large among individuals who perceive air pollution where they live as high.