Willingness to pay for sustainable housing

Transcription

1 Wllngness to pay for sustanable housng Svante Mandell a) och Mats Wlhelmsson b) Abstract Over the last decades there has been an ncreasng focus on how to buld a sustanable socety and n partcular on how to desgn polces that pushes the socety nto a more sustanable drecton. The present paper ams at analysng dfferences between house buyers when valung envronmental characterstcs assocated wth the house as such. The theoretcal framework used s based on the hedonc modellng, but we are also estmatng the second stage by assumng a translog utlty functon. In dong that we are able to estmate the non-margnal wllngness to pay for envronmental housng attrbutes and whether envronmental aware household have a hgher wllngness to pay or not. The concluson to be drawn from the analyss s that there s a postve wllngness to pay for envronmental attrbutes. Hence, there may be room for polcy measures such as nformaton campagns. However, t seems to be more effectve concernng envronmental housng attrbute that do not requre large nvestment. a) vt Swedsh Natonal Road and Transport Research Insttute, Box 55685, SE , Stockholm, Sweden, svante.mandell@vt.se, b) Center for Bankng and Fnance, Royal Insttute of Technology, KTH, Sweden 1

2 1. Introducton Over the last decades, not least snce the Brundtland report was publshed n the late 1980:s, WCED (1987), there has been an ncreasng focus on how to buld a sustanable socety and n partcular on how to desgn polces that pushes the socety nto a more sustanable drecton. It seems natural that such polces should target areas where they can make a dfference. Arguably, housng s one such area, partly because ts current substantal mpact on the envronment may be lowered usng exstng and relatvely cheap measures and partly due to housng beng a hghly durable good that wll mpact the envronment for many years to come. If one s to succeed n buldng a sustanable socety, t s essental that the ndvduals the consumers fnd t n there own nterest to act n a sustanable manner. Typcally, economc polcy nstruments, for example, emsson taxes or cap and trade regmes, acheve exactly ths. By puttng a prce on beng unsustanable, for nstance, emttng greenhouse gases, ncentves for a more sustanable behavour are provded. It s easly shown that such economc polcy nstruments n most stuatons are superor to other approaches such as command and control. In partcular, the flexblty provded by economc nstruments, followng from that the agents are free to choose whether to pollute and pay a tax or not, s a key feature n reachng a cost effectve outcome. However, dependng on the stuaton, there may be room for other polcy measures, as for nstance nformaton campagns. To desgn an approprate polcy package for sustanable housng, the polcy maker needs to know how the agents n the housng markets are lkely to respond to polces. Ths s the focus of the present paper. By the use of a unque data set that combnes hgh qualty regster data on the characterstcs of 618 sngle famly houses wth the result of a survey that both adds further housng characterstcs as well as nformaton regardng the ndvdual buyers, we are able to take a seres of mportant steps towards a better understandng of the wllngness to pay for sustanable features of housng. The data allow us to analyse the mpact from household characterstcs such as ncome, level of educaton and number of chldren, on the behavour of dfferent buyers. To add yet another layer to the analyss, we dstngush potental dfferences n wllngness to pay between buyers that (state that they) perceve themselves as envronmentally aware and those that do not. Ths may provde some valuable nput for polcy makers. Let us, for the moment, assume that those who clam themselves to be envronmentally aware actually are better nformed about how ther behavour affects the envronment. If the aware group shows a dfferent (presumably hgher) wllngness to pay for envronmental housng attrbutes 1, ths opens up for nformaton campagns beng a part of a justfable polcy. If, on 1 Ths seems to be the case for consumer goods, as noted n The Wall Street Journal, Aprl 24-25, 2010; About 17% of U.S. consumers sad n a recent survey that they were wllng to pay more for envronmentally frendly products, up from 10% last fall and 13% a year earler 2

3 the other hand, there are no dfferences between the groups one needs to fnd some other way of justfyng spendng money on such campagns. The present paper thus ams at analysng dfferences between house buyers when valung envronmental characterstcs assocated wth the house as such. Even though there are several smlartes, not least regardng the techncal approaches, t dffers from the large lterature that uses house prces to fnd estmates for the wllngness to pay for envronmental qualty rather than, as here, for physcal housng attrbutes 2. Ths lterature ncludes studes addressng ar qualty, for example, Smth and Deyak (1975), Kel and McClan (1985). Chattopadhyay (1999, 2000), Beron, Murdoch and Thayer (2001) and Brasngton and Hte (2005), water polluton, for nstance, Hoehn, Berger and Blomqust (1987), and stes for toxc waste, for example, Kohlhase (1991), Nelson, Genereux and Genereux (1992) and Hte et.al. (2001). Ths paper s also related to a large lterature dscussng wllngness to pay for envronmental polcy, Longo et.al. (2008) and Scarpa and Wlls (2010). Smlar questons that we address n the present paper are relevant for other knds of composte goods than housng. A promnent example may be wllngness to pay for envronmental attrbutes of new cars, as has been addressed n for example Potoglou and Kanaroglou (2007) and Axsen et.al. (2009). The remanng paper s structured as follows. Secton 2 provdes the theoretcal framework, leadng up to a functon that s emprcally testable. Secton 3 presents the data and the econometrc analyss. Polcy mplcatons are dscussed n Secton 4. Secton 5 concludes. 2. Theoretcal framework A central queston addressed n ths paper s; do people that clam themselves to be envronmentally aware exhbt a hgher wllngness to pay for attrbutes that may be consdered envronmentally frendly? To answer ths queston, several steps are requred. Frst, we need some way to compare dfferent buldngs from a sustanablty pont of vew. Ths may be done n more or less arbtrary and/or subjectve ways. In the present paper we use prncpal component analyss to reach a classfcaton determned by the data. Second, we need to establsh what the market partcpants have pad for envronmental housng attrbutes. To dsentangle the dfferent attrbutes, we wll use a hedonc prce equaton. 2 There s a lterature on energy-savngs measures, see for nstance Banf et.al. (2008), whch s close to the present study. However, the techncal approach s dfferent from ours. 3

4 As a thrd step, we may turn to the wllngness to pay. Ths requres a second equaton, whch enables us to study how socoeconomc attrbutes of the house buyers may nfluence ther wllngness to pay for sustanable housng attrbutes, see Rosen (1974). Here we make an assumpton that each ndvdual strves to act hs or her utlty. Ths would suggest that envronmentally aware ndvduals should purchase housng wth a hgher degree of envronmental attrbutes. However, ths approach s not suffcent. For nstance, as ndvduals (or households n our dataset) have dfferent ncomes, t could be that hgh ncome households buy housng wth more envronmental attrbutes, not because they are more envronmentally aware but because they buy more of all attrbutes. Thus, we need a better hypothess regardng how envronmentally aware households are lkely to behave. The one we suggest s that for any gven allocaton of attrbutes, an envronmentally aware household would be wllng to sacrfce more non-envronmental attrbutes n order to acheve one extra (margnal) unt of an envronmental attrbute than would a non-aware household. To formalze ths, let us assume that a household spend ther ncome on buyng a house wth a set of attrbutes whle the remanng ncome s spent on other consumpton 3. Let us denote the expected ncome over the household s lfetme by I, other consumpton by x whch we treat as a numerare good (.e., ts prce s normalzed to 1), and the prce of the house P. The house prce s a functon of housng attrbutes captured by a vector z whch thus contans both normal and envronmental attrbutes. A household s budget constrant may be wrtten as: ( z) I x + P = (1) Gven ths budget constrant, the household strves to maxmze ts utlty, denoted U, whch s a functon of x and z. Solvng ths maxmzaton problem yelds that the followng condton must be fulflled n optmum: P( z) z U / z = U / x (2) The left hand sde of (2) s the mplct margnal prce for attrbute z. The rght hand sde s the margnal utlty from attrbute z over the margnal utlty of good x, that s, the margnal rate of substtuton between z and x. The mplct prce for attrbute z s reached by dfferentatng the hedonc prce equaton wth respect to z. To formalze the rght hand sde however requres an assumpton about the specfc form of the utlty functon. In the followng we wll use a translog functon (frst suggested by Lau and Mtchell (1971)). Ths flexble functonal form s frequently used 3 Thus, we are assumng that a household buys only one house. In the subsequent emprcal part we use the current (monthly) ncome to derve a proxy for the lfetme ncome and thereby we mplctly assume no transfers between generatons. 4

5 to capture utlty (often ndrect utlty) and producton functons n emprcal studes. There s a whole famly of dfferent translog functons; all share common features but dffer n exact specfcaton. The one we use n the present paper s the followng: U k ( x, z) = log x + ( α + φe, E + φf, F + φh, H ) k = 1 k = 1 j= 1 β log z log z j j log z (3) Where k s the number of housng attrbutes, E s a dummy varable denotng whether or not the household states that they perceve themselves as envronmentally aware, F measures famly sze, and H measures the number of persons n the household wth hgher educaton. The parameters that specfy the utlty functon are α, φ E,, φ F,, φ H,, and β j. Where β j = β j. It s easly shown that a postve value of φ E, mples that for envronmentally aware households, to be exact, when E=1, log x must decrease more when z s ncreased for U to be kept at some arbtrary level 4. That s, the functonal form captures the noton of envronmental awareness as put forward above. Dfferentatng (3) wth respect to z and x respectvely yelds an analytcal expresson for the margnal rate of substtuton, that s, the rght hand sde of (2): U U z x = k x α + φe, E + φf, F + φh, H + βj log z j z (4) j= 1 It wll prove useful to rearrange (2) so that t s expressed n terms of an expendture rato,.e., relatng the expendture on a partcular attrbute to the expendture on all other consumpton. Ths s acheved by multplyng both sdes wth z and dvdng by x, whch together wth (4) yelds the followng equaton: z x P z ( z) k = α + φe, E + φf, F + φh, H + βj log z j (5) j= 1 that wll be estmated n the subsequent emprcal analyss. Once the parameters of the expendture functon are estmated, we may derve the wllngness to pay for the attrbutes. The wllngness to pay for a margnal change n the level of an attrbute follows from 4 Let U(x,z) be equal to an arbtrary postve constant, K, and rearrange (3) such that log x s on the LHS. Dfferentatng wth respect to z and E yelds -Σ(φ /z ), whch thus s the addtonal mpact on log x from a change n z when E=1 rather than 0. As all z are postve, ths expresson s negatve f φ>0,.e., a larger decrease n log x s requred f E=1. Ths translates nto steeper ndfference curves for envronmentally aware households (E=1) for any allocaton of x and z. 5

6 the margnal rate of substtuton gven n (4). For non-margnal changes, the wllngness to pay s gven by b a U z dz U x where the level of attrbute z s changed from a to b. Assumng b = 1.25 a the wllngness to pay s approxmately 5 gven by, x log[1.25]( ϕ + β (log[1.25] + 2log[ a]) (6) 2 where ϕ = α + φ E + φ F + H. E, F, φh, 3. The Emprcal Analyss 3.1 The Data The emprcal analyss s based on a cross-sectonal data-set ntally coverng 968 transactons of sngle-famly houses n 2000 n Stockholm, Sweden. Besdes the standard transacton data, such as house prce, sze, qualty, and dstance to central busness dstrct (CBD), the data set s supplemented by data relatng to housng characterstcs and household attrbutes collected by a postal survey. The survey contaned several questons about the household (ncludng famly sze, educatonal background, ncome, and envronmental awareness) and envronmental related property characterstcs. It was posted to all households that bought a sngle-famly house n 2000 and stll owned t n The response rate was about 65 per cent, leavng a total number of observatons ncluded n the sample of 618. The data set has earler been used n Wlhelmsson (2008a and 2008b). Table 1 summarzes the data. The average prce s SEK 2.5 mllon 6 ; however, the varaton around the average prce s substantal. The typcal sngle-famly house n the sample s 50 years old, wth approxmately 120 square meters of lvng space over fve rooms. On average, the sngle-famly houses are located around 8.8 klometers from CBD. Around 5 per cent of them have sea vew and 29 per cent are located close to a major road. About half of the houses were, at the tme of purchase, n need of nteror or exteror mantenance accordng to the buyers. 5 Followng Chattopadhyay (1999). The expresson reles on an assumpton that the wllngness to pay for a gven attrbute s small relatve to other consumpton, x. 6 At the tme of wrtng, 1 SEK s approxmately 0.1 or USD 0.14 so the average prce corresponds to around or USD

7 Table 1. Descrptve Statstcs Varable Abbr. Unt Average Standard Devaton Average Envronmental Aware Housng Prce P SEK 2,547,583 1,214,785 2,542,297 Housng Attrbutes Lvng area LA Square ,79 meter Other area OA Square ,83 meter No. of rooms R Number Lot sze LS Square meter Qualty Q Index ,61 Age A Year ,41 Dstance to CBD Dst Meter Sea vew Sea Bnary Traffc Tr Bnary Need of mantenance Nr Bnary Envronmental Related Housng Attrbutes Ventlaton wth heat- exchanger Vent Bnary Insulaton roof (extra) Insr Bnary Insulaton walls (extra) Insw Bnary Water reduced WC WC Bnary Water reduced water WB Bnary taps Central heatng CH Bnary Heat pump HP Bnary Solar energy SE Bnary Waterborne heatng WHD Bnary dstrbuton Arborne heatng AHD Bnary dstrbuton Three-glass wndow 3W Bnary Household Characterstcs Income per month IM SEK 59,246 20,208 59,350 Lfetme ncome LI M.SEK Famly Sze S Number Hgher Educaton E Number Envronmental Awareness (self reported) EA Bnary Number of observaton 618 The data set contans nformaton about eleven dfferent housng characterstcs that are related to the envronment n some way. As many as 79 per cent of the houses have a waterborne heatng dstrbuton system, whch s superor to electrcal heatng n terms of beng more effcent and flexble. Around per cent of the houses have retroftted extra nsulaton n roofs and walls and three-glass wndows. Almost 20 per cent of the houses have water reduced WC and water taps. Less common s ventlatons wth heat-exchanger and heat pump (less than 10 per cent). Houses usng solar energy are even less common (less than 1 per cent). 7

8 The average household conssts of 3.7 persons wth a standard devaton of 1.4. The average household ncome s equal to SEK 60,000 per month and around 30 per cent of the household have an ncome that s hgher than SEK 80,000 (average plus one standard devaton). The household s lfetme ncome s estmated as the present value of the current ncome at a 6 per cent dscount rate. Our measurement of lfetme ncome s more a multple of current ncome and perhaps not an accurate measure of permanent ncome. The lfetme ncome s estmated to be around 14 mllon SEK. A very hgh proporton of the ndvduals n the households have a hgher educaton (unversty degree). On average, 1.3 persons per household have a unversty degree. Four questons were asked about envronmental awareness. The frst queston asked whether or not the respondents consdered themselves envronmentally aware. Response optons were yes ors no. Around 80 per cent of the buyers regard themselves as envronmental aware. On average, envronmentally aware households have hgher monthly ncome, are better educated and are larger. However, these dfferences are small and not sgnfcant. Moreover, envronmentally aware households are not buyng other types of houses when t comes to sze and ndoor qualty, but t seems that the buy more envronmental housng attrbutes. The other three questons asked whether the household were compostng ktchen waste, were usng energy savng lght bulbs and/or were separatng waste. All questons were answered wth yes or no. In the subsequent analyss, these latter questons wll be used as nstrument varables. 3.2 Prncpal Component Analyss The envronmental housng characterstcs n the data set show a hgh degree of multcollnearty, whch complcates the analyss and ts nterpretaton. Furthermore, all our envronmental housng attrbutes are bnary varables. Ths causes problems when estmatng the utlty parameters. To remedy ths, we have used the prncpal components n the hedonc prce equaton. Prncpal component analyss (PCA) s a statstcal method that from a number of varables develops a smaller set of varables (called prncpal components) takng the varance of the orgnal varables nto account. Each prncpal component s a lnear combnaton of the orgnal varables. The technque can be used for varable reducton, but here we use t to mtgate the problem of multcollneraty between the envronmental housng attrbutes (see Dunteman, 1992). It also transforms a set of bnary varables nto a set of contnuous varables, whch facltates the nterpretaton. The prncpal components are by defnton not correlated to each other. A real estate applcaton of the prncpal component analyss can be found n, for example, Goodman (1978), Des Rosers et al (2000) and Bourassa et al (2003). 8

9 Table 2. Prncpal Component Analyss A. Explanatory power of each factor Component Egenvalue Proporton Cumulatve M M M M M M M M M M M B. The nature of the factors Component Descrpton Varable loadng (> 0.40 ) M1 Ventlaton Ventlaton wth heat exchanger Three-glass wndow M2 Insulaton Insulaton roof Insulaton wall Arborne heatng dstrbuton M3 Water reducton Water reduced WC Water reduced water taps M4 Heat pump Water reduced WC Central heatng Heat pump M5 Central heatng Central heatng Solar energy M6 Solar energy Solar energy.48 M7 Waterborne dstrbuton Heat pump Waterborne heatng dstrbuton Arborne heatng dstrbuton M8 Three-glass wndow Arborne heatng dstrbuton -.48 Three-glass wndow M9 Mscellaneous Water reduced WC Water reduced water M10 Arborne heatng dstrbuton M11 Insulaton wall Insulaton roof Insulaton wall Ventlaton wth heat exchanger Ventlaton wth heat exchanger Arborne heatng dstrbuton Three-glass wndow In table 2, the result of the prncpal component analyss s presented. Secton A shows the egenvalues and the proporton of the total varance for each component. Hgh egenvalues ndcate that the component explan a large porton of the total varance among the varables. However, note that the prncpal component analyss does not say anythng about the correlaton between the envronmental housng attrbutes, the constructed prncpal components, and house prces. In secton B, the prncpal components are presented and categorzed accordng to the most mportant varables ncluded n the constructon of the component. The four frst components explan around 50 per cent of the total varance n all the envronmental housng attrbutes. 9

10 3.3 The Hedonc Prce Equaton We now turn to estmatng the hedonc prce equaton. That s we conduct a regresson of house prces aganst attrbutes that determne these prces. The regresson coeffcents are estmates of the hedonc (mplct) prces of these attrbutes. The benchmark model uses all attrbutes dscussed and presented above. We have used the stepwse regresson approach n order trm down the hedonc prce equaton, and thus we follow Greene (2008); the attractve strategy s then to adopt a general-to-smple, downward reducton of the model to the preferred specfcaton. Ths approach goes through a step-by-step process of addng (forward stepwse regresson) or elmnatng (backward stepwse regresson) varables untl the best model s produced based on the search crtera. At each step, an F test s performed to determne f that varable s approprate to nclude or exclude. The benchmark model and two stepwse regressons are presented n the Table 3. A Box-Cox transformaton has been performed n order to analyze the functonal form of the hedonc equaton. The preferred model s the semlogarthmc specfcaton where the dependent varable, but not the ndependent varables, has been transformed. The results ndcate that around 70 per cent of the varaton n prce can be explaned by the ncluded housng attrbutes and neghborhood characterstcs. All the estmated parameters have expected sgn and are of reasonable magntude. If lvng area ncreases by one square meter, prce s expected to ncrease by SEK 10,425 ( *2.5 mllon) and addng one more room ncreases the prce by per cent ((e )*100). Sea vew ncreases the expected value by 28 per cent and road traffc reduces the expected prce by 5.1 per cent (or around SEK ). Out of the eleven prncpal components, seven are sgnfcant (M2, M3, M5-M8 and M11). The component that ncludes waterborne heatng dstrbuton (M7) exhbts the hghest economc mpact together wth three-glass wndow (M8). The results ndcate that the components water reduced WC and water reducng taps (M3) as well as nsulaton (M2), solar energy (M6), central heatng (M5), and nsulaton n the wall (M11) all have statstcally sgnfcant postve hedonc prces and thereby a postve wllngness to pay (WTP) attached to them. As the varable need of mantenance s ncluded n the prce equaton, the envronmental attrbutes s not pckng up a well-mantenance effect. The R- square s slghtly hgher n the model usng all varables but the stepwse regresson (forward) model; has been used n the estmaton of the utlty parameters as t has the lowest AIC and BIC. 10

11 Table 3. The Hedonc Prce Equaton All varables Stepwse regresson (forward) Stepwse regresson (backward) Lvng area (8.83) (10.72) (10.60) Other area (.76) Lot sze (1.12) Number of rooms (2.01) (1.94) (1.88) Age (-.19) (2.25) Qualty (2.20) (2.68) (3.09) Need of mantenance (-4.90) (-4.63) (-5.09) Sea vew (4.50) (4.73) Traffc (-2.38) (-2.40) (-2.39) Dstance to CBD (-2.30) (-4.31) (-5.06) M1 (Ventlaton) (-.63) M2 (Insulaton) (1.40) (2.36) (2.47) M3 (Water reducton) (1.81) (1.87) (1.92) M4 (Heat pump) (-.09) M5 (Central heatng) (2.47) (1.71) M6 (Solar energy) (2.19) (2.34) (2.31) M7 (Waterborne dstrbuton) (1.99) (2.20) M8 (3-glass wndow) (2.04) (2.50) (3.09) M9 (Mscellaneous) (.30) M10 (Arborne dstrbuton) (1.10) M11 (Insulaton wall) (1.83) (1.65) (2.01) Constant (70.96) (186.98) (213.48) R-square AIC BIC Number of observaton Note: Coeffcents concernng sum-markets and month of sale are not shown n the table. Whte heteroskedastcty-robust t-statstcs wthn brackets. 11

12 3.4 The Utlty Functon The utlty parameters can be revealed by estmatng the expendture rato equaton gven by (5). Table 4 presents the descrptve statstcs concernng these expendture ratos. Table 4. Expendture rato. Varable Mean Standard devaton Maxmum Exprato (Insulaton, M2) Exprato (Water reducton, M3) Exprato (Central heatng, M5) Exprato (Solar energy, M6) Exprato (Waterborne dstr., M7) Exprato (3-glass wndow, M8) Exprato (Insulaton wall, M11) Note: The expendture rato for Exprato (Insulaton, M2) s estmated as WTP M2 *M2/X. Analogous defnton for the other expendtures rates. X (all other goods) s estmated as the dfference between expected lfetme ncome (I) and housng prce (P) Compared to spendng on all other consumpton, spendng on envronmental attrbutes s small. Households nvestng n central heatng (M5) and solar energy (M6) nvestng a larger porton of ther total consumpton when buyng that attrbute, whch s natural, as such nvestments are costly. For example, on average almost 5 per cent s spent on solar energy compared to all other consumpton and almost 8 per cent s spend on central heatng. Around 2 per cent of all other consumpton s spent on the other envronmental related characterstcs except for nsulaton n the wall (M11). Table 5 shows the correlaton between the expendture ratos and the household characterstcs. Table 5. Correlaton between expendtures on envronmental housng attrbutes and household characterstcs. Famly sze Hgher Educaton Envronmental Awareness Exprato (Insulaton, M2) Exprato (Water reducton, M3) Exprato (Central heatng, M5) Exprato (Solar energy, M6) Exprato (Waterborne dstr., M7) Exprato (3-glass wndow, M8) Exprato (Insulaton wall, M11) All expendture ratos are negatvely correlated to hgher educaton, but postvely to famly sze. Hence, larger famles wth lower educaton spend more on envronmental housng attrbutes n relaton to all other consumpton. The correlaton between the expendture ratos and envronmental awareness s postve except for nsulaton. Hence, households that perceve themselves as envronmentally aware seem to spend more on envronmental housng characterstcs n relaton to all other consumpton than others do. The next step s to estmate equaton 5 n whch the expendture 12

13 ratos are related to famly sze, educatonal background, envronmental awareness and consumpton of housng attrbutes. As a number of equatons are to be estmated smultaneously and we have a problem wth endogenety, a three-stage least square approach wll be used. Three-stage least square s a combnaton of seemngly unrelated regresson developed by Zellner (1962) and two-stage regresson wth nstrument varables (see Zellner and Thel, 1962). In a multple equaton system lke ours where the same data set s used, the dependent varable as well as some of the ndependent varables dffer between the equatons, the errors may be correlated between the equatons. Three-stage least squares may, therefore, be more effcent than two-stage least squares (see e.g. Madansky, 1964, Belsley, 1988, and Greene, 2008). Table 6. Estmate of the Utlty Parameter concernng Envronmental Awareness (Equaton 4) Utlty Functon Parameter Envronmental Awareness (exogenous) Envronmental Awareness (endogenous) Insulaton c (1.08) (0.65) Water reducton a (3.50) a (2.68) Central heatng (1.18) a (2.65) Solar energy a (3.25) b (2.14) Waterborne dstr a (2.90) c (1.94) 3-glass wndow (1.17) (0.11) Wall nsulaton c (1.93) c (1.91) Note. Three-Stage Least Square Estmates. Instruments: ncome, square of ncome, famly sze, square of famly sze, educatonal background, compostng, use of low-energy lamps, waste sortng, sub-market and crossproducts. a sgnfcant at 1% level, b sgnfcant at 5% level and c sgnfcant at 10% level. Standard errors are not shown to reduce space. t-statstcs wthn brackets. Number of observatons: 545. As some of the ndependent varables are endogenous, ordnary least square regresson or seemngly unrelated regresson may produce spurous results. The nstrument varable approach may avod ths bas f the nstrument varables are vald (see Murray, 2006). In our case, the endogenety s connected to the smultaneous choce of margnal prce and the level of the housng attrbute. In accordance wth Qugley (1982), Chattopadhyay (1999) and Wlhelmsson (2002) we are usng soco-economc characterstcs of the household as nstruments, for example, ncome and square of ncome, as well as famly sze, square of famly sze, and educatonal background. It may also be that the varable envronmental awareness s endogenously determned, as t s self-reported. The queston s, f the household bought the house because they are envronmental aware or after the purchase use envronmental awareness as justfcaton for the expensve purchase. That s, causalty s not obvous. We, therefore, estmate two models. In the frst model envronmental awareness s treated as beng an exogenous varable whle t s treated as endogenous n the second. Instrument varables for envronmental awareness are used and they are assumed to be hghly correlated wth the 13

14 envronmentally awareness but not wth the error term. Instrument varables are compostng, use of low energy lght bulbs and waste separaton. In table 6, the results from the three-stage procedure are presented. The results mply that envronmental awareness have a sgnfcant effect on the form of the household utlty functon. The mpact seems to be especally strong concernng the attrbute M3 (water reducton), but also for M5 (central heatng) and M6 (solar energy). The t-values are slghtly hgher n the model assumng envronmental awareness as exogenous varable compared to the model where t s assumed t s endogenous. Envronmental awareness concernng central heatng s not sgnfcant n the frst model, but sgnfcant n the second. Moreover, envronmental awareness concernng waterborne dstrbuton system s sgnfcant n the former, but not n the latter. Gven that our nstrument varables are vald, the results suggest that the varable s not endogenous ant that envronmental awareness affects wllngness to pay and not vce versa. Wth the estmates of the utlty parameters known, the estmates for non-margnal WTP can be calculated. 3.5 Non-margnal WTP Table 7 below shows the non-margnal WTP for the envronmental related housng attrbutes. Usng the same method as Chattopadhyay (1999), we calculate the average non-margnal WTP for a 25 per cent ncrease n a gven housng attrbute level. The non-margnal WTP has been estmated for each household. In the table, the average non-margnal WTP s presented for all households and for households wth an ncome larger than one standard devaton from the average ncome. Table 7. Non-margnal WTP (Translog utlty functon), SEK. All Hgh Income Not aware Aware Dfference Not aware Aware Dfference Insulaton 219, , % 319, , % Water reducton Central heatng Solar energy Waterborne dstr. 3-glass wndow Wall nsulaton 192, , % 279, , % 41,689 44, % 60,445 63, % 413, , % 601, , % 213, , % 310, , % 143, , % 207, , % 83,833 88, % 122, , % 14

15 Not surprsngly, the non-margnal WTP for all the envronmental related housng attrbutes s hgher for envronmental aware households. On average, envronmentally aware households show a nonmargnal WTP about 2-4 per cent hgher for nsulaton, solar energy and waterborne dstrbuton system and around 5-8 per cent when t concerns water reducng technologes, wall nsulaton and central heatng. Households wth a hgh ncome are, n general, wllng to pay more for a non-margnal changes, but the dfference between envronmental aware households and not aware are more or less the same as for all households. 4. Polcy mplcatons There may be several reasons for why there s a postve, and sgnfcant, wllngness to pay for some of the attrbutes studed. Perhaps the most obvous s that the attrbutes provde a mean to reduce other costs, typcally assocated wth energy or water consumpton. Thus, we would expect to observe postve wllngness to pay even n a stuaton where the agents have no preferences for the envronment whatsoever. From a polcy pont of vew ths leads to the obvous concluson that one may nduce a larger use of envronmental technology n housng through ncreasng the cost of harmng the envronment, that s, f energy producton causes a negatve externalty, the government may ntroduce a correctve energy tax. Ths s of course well known and standard proceedngs n many countres, not least Sweden from where the data s collected. What s nterestng s that ths does not requre any envronmental awareness among the agents who wll only respond to the ncentves provded by the tax. The analyss above contrbutes to ths well known outcome by studyng f there exsts an addtonal envronmental awareness effect. That s, s t the case that at least some agents demand envronmental attrbutes, not only because they reduce other costs the agents may have but because they are good for the envronment? Ths s nterestng n ts own rght as one may argue both for and aganst the exstence of such an effect. On the one hand, the envronment s obvously mportant for present and future generatons and, hence, there should be a wllngness to pay for t. On the other hand, the envronment exhbts strong publc good characterstcs and, especally as there are correctve taxes used on the studed market, t should be handled by a central government and fnanced by taxes. However, the analyss s also of mportance for polcy desgn. In partcular, t has mpact on the applcablty of nformaton campagns. If t s the case that agents that are envronmentally aware do not have a hgher wllngness to pay, t becomes harder to justfy such campagns. The present study does not address to what extent nformaton campagns are capable of nfluencng consumers preferences. That s, whether they may make people envronmentally aware. The pont here s rather 15

16 to nvestgate whether envronmentally aware households exhbt a hgher wllngness to pay for envronmental housng attrbutes. Ths s mportant snce, f ths s the case, t motvates mplementng polces amed at ncreasng the envronmental awareness as then more may be acheved wth a gven economc polcy nstrument or, put another way, a gven goal may be acheved wth less nterventon n the economy, e.g., lower energy taxes. If, on the other hand, there were no connecton between wllngness to pay and envronmental awareness, t becomes much harder to argue for spendng resources on nformaton campagns etc. There would stll be other reasons for such polces, e.g., to ncrease acceptablty for economc nstruments, but no real ground for expectng that the nformaton would lead to changes n behavor on the housng market. The analyss shows that agents who label themselves as envronmentally aware actually exhbt a larger wllngness to pay for many of the envronmental attrbutes. Thus, ncreasng the envronmental awareness n a socety lead to a larger wllngness to pay for envronmental attrbutes, ths n turn may lead to a lower envronmental mpact from the housng sector. Ths result may thus be used to promote the use of polces such as nformaton campagns. However, a closer look at the results yelds that the largest mpact s found for measures that do not requre large nvestment, for example, nstallng water reducng taps. For more costly nvestment such as retrofttng nsulaton or nstallng solar panels, the dfference n wllngness to pay between those who label themselves envronmentally aware and those who do not s much smaller. A plausble explanaton may be that larger nvestment requres more of thorough calculatons, leavng less room for subjectve valuatons. To the extent that t s the large nvestment that really can make a dfference, ths observaton may be troublng. Thus, the results from the analyss above suggest that efforts towards ncreasng envronmental awareness may be justfable, but also that n order to nfluence choces of more substantal nature these efforts should be coupled wth economc ncentves. That s, nformaton campagns leadng to ncreased awareness may be justfable, but they are rather a complement than a substtute to economc polcy nstruments f one strves for more substantal changes n behavor. 5. Conclusons It s not obvous that that envronmental attrbutes should be assocated wth a postve wllngness to pay. After all, some envronmental attrbutes may very well be assocated wth characterstcs that are not desrable, for nstance, water reducng taps may be perceved as provdng less comfort. The frst concluson to be drawn from the analyss n ths paper s thus that there s a postve, f any, wllngness to pay for envronmental attrbutes. That s, none of the attrbutes examned exhbts a negatve and sgnfcant wllngness to pay. 16

17 To a large extent the envronmental attrbutes we study wll reduce costs for the households, for nstance by reducng energy or water consumpton. A postve wllngness to pay for these attrbutes may thus exst even wthout any envronmental concerns on the households behalf. Therefore, t s an nterestng fndng that households that state that they perceve themselves as envronmentally aware actually show a sgnfcantly hgher wllngness to pay for envronmental housng attrbutes. We have argued that ths fndng s nterestng n tself, but also that t has polcy mplcatons as t justfes spendng resources on efforts amed at ncreasng the envronmental awareness among the general publc. However, the analyss reveals a pattern ndcatng that the mpact from envronmental awareness on wllngness to pay s lower (although stll sgnfcant) for attrbutes assocated wth larger nvestments, e.g., heatng pumps or solar energy. Ths leads us to conclude that there s room for nformaton campagns and smlar polcy measures, but these needs to be complemented wth economc polcy nstrument n order to nfluence behavor on a larger scale. 17

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