Contaminated sites and information in hedonic models: An analysis of a NJ property disclosure law

This paper explores the impact of information on the hedonic valuation of proximity to contaminated sites. The analysis exploits the passage of a 2004 New Jersey property disclosure law to identify an external change in information. The law required real estate sellers to disclose information about nearby contaminated sites. After presenting a model of the impact of disamenity information on home prices, we use several econometric variations to test hypotheses about the effects of additional information. Results indicate that the impact on home prices near contaminated sites depended on the baseline information about contamination. Homes prices near widely-known contaminated sites did not see a change after the disclosure law. However, homes near sites that were less well-known before the disclosure did see a drop in price as home buyers were given new information. Our results have several important implications on the assumptions of the hedonic model and could be used to formulate more effective disclosure laws in the future.