The value of disappearing beaches: A hedonic pricing model with endogenous beach width

Beach nourishment is a policy used to rebuild eroding beaches with sand dredged from other locations. Previous studies indicate that beach width positively affects coastal property values, but these studies ignore the dynamic features of beaches and the feedback that nourishment has on shoreline retreat. We correct for the resulting attenuation and endogeneity bias in a hedonic property value model by instrumenting for beach width using spatially varying coastal geological features. We find that the beach width coefficient is nearly five times larger than the OLS estimate, suggesting that beach width is a much larger portion of property value than previously thought. We use the empirical results to parameterize a dynamic optimization model of beach nourishment decisions and show that the predicted interval between nourishment projects is closer to what we observe in the data when we use the estimate from the instrumental variables model rather than OLS. As coastal communities adapt to climate change, we find that the long-term net value of coastal residential property can fall by as much as 52% when erosion rate triples and cost of nourishment sand quadruples. (C) 2010 Elsevier Inc. All rights reserved.