Estimating the benefits of shore erosion protection in Ohio's Lake Erie Housing Market

Abstract

FRANK LiCHTKOPPLER1Ohio Sea Grant Program, Ohio State Universi.ty, Columbus Lakeshore erosion, characterized as a reduction in distance between property improvements and the lake, will eventually threaten improvements. An option price model suggests that erosion-prone lakeshore property will be discounted and this discount may be measured by hedonic price analysis.We discuss the conditions that permit benefit estimation from the hedonic regression. Analysis of mail survey returns estimates willingness to pay for erosion protection, as measured by the number of years remaining until property improvements are endangered. INTRODUCTIONLand losses due to erosion of the Great Lakes' shoreline threaten property in every lakeshore state and province. These property losses are characterized by the gradual disappearance of a parcel's setback, i.e., the distance between property improvements and the lake, which if allowed to continue eventually threatens property improvements with collapse into the lake. Shoreline residents voice their concerns to local and state governments, and the U.S. Army Corps of Engineers. Whether government should take responsibility in assisting these property owners is controversial. There exist a variety of erosion protection devices forwhich the life expectantics and construction costs can be estimated. However, gaining knowledge of the benefits of erosion protection is more problematic because of (1) private versus social benefits, and (2) a lack of market information.Regarding the first problem, there are two features that limit the divergence of private benefits and social benefits. First, the Corps' construction restrictions on private erosion control devices are intended to minimize externalities. Second, in the Great Lakes no government project for erosion control has been proposed. Therefore, private benefits will be close to social benefits, and a benefit analysis can be limited to private benefits for individual property owners. Regarding the second problem, potential property buyers, real estate appraisers and mortgage lenders need better information on how erosion and erosion protection devices affect property prices. An analysis of market data would be required because these price effects are implicit in the housing market. Thus, the problem addressed by this research is that of 1Also at Lake County Extension Office, Painesville, Ohio. The paper is organized as follows. The geological and engineering aspects of shore erosion are described. Erosion protection is modeled within an option price framework, and we describe the conditions that permit benefits of protection to be calculated directly from the estimated hedonic equation. Data collection in the Ohio portion of Lake Erie is discussed, and estimation of a hedonic regression is reported. Finally, estimates of the benefits from erosion control are discussed. THE SHORE EROSIONPHENOMENON There are four types of shoreline found along the Great Lakes: cliffs, marshes, beaches and bluffs [ U.S. Army Corps of Engineers, 1978]. Cliffs ar...

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