The cost of road noise

The cost of traffic noise has been the subject of several hedonic analyses, yet most of these are limited to the first stage estimation of the hedonic price function. The goal of the present research is to carry out a complete hedonic analysis to estimate and analyze household preference parameters. The analysis quantifies the willingness to pay to avoid road noise using a dataset of households and housing transactions in the Greater Copenhagen Area. The empirical strategy in the first stage analysis is aimed at simultaneously reducing the risk of omitted variable bias and the risk of measurement error in the noise measure. The latter arises because only a single cross-section of noise measures was available and was used for transactions over several years.

The preference parameters are identified through the assumption of a simple functional form for utility. Willingness to pay for noise reductions is found to be increasing for higher levels of noise. A reduction of 2 dB is worth about twice as much when it occurs at 72 dB compared to the value of the reduction at 62 dB. Observable demographic characteristics explain some 32 percent of the variation in willingness to pay for a noise reduction. Some of the more important factors are income and household type, in particular, the presence of children is a significant factor in increasing willingness to pay. However, a large part of WTP heterogeneity is left unexplained, which may be a concern when considering benefit transfer. While it is possible to adjust for observable differences between areas in terms of e.g. household composition, selection into different areas based on unobserved taste cannot be controlled for in such a setting.