Valuing local water quality in Ontario using revealed preference data

Abstract Improving water quality is an important goal for policymakers, yet understanding the economic benefits people receive from changes in water quality is challenging because many of the benefits are non‐market in nature. We use spatially explicit lake Secchi disk depth measures and information on over 320,000 property sales to provide the most extensive revealed preference value estimates of water clarity improvements in Canada. We find that a 10% increase in water clarity (as measured by Secchi disk depth) appreciates nearby property values by 0.56%. We do not find evidence for higher price premiums for properties located within 0–250 m of a lake compared to 250–500 m. The findings remain consistent when employing property fixed‐effect models and a series of alternative model specifications. A 10% improvement in lake water clarity in southern Ontario is estimated to yield a total benefit of $2 billion across properties with an aggregate property value of $359 billion, translating to an average benefit of $151 per household. The increase in property values could provide $31 million in additional annual municipal tax revenue to fund water quality improvement initiatives.