Policy makers often face the problem of evaluating how water quality affects a region's economic well-being. Using water clarity as a measure of the degree of eutrophication levels (as a lake becomes inundated with nutrients, water clarity decreases markedly), analysis is performed on sales data collected over a six-year period. Our results indicate that water clarity has a significant effect on prices paid for residential properties. Effects of a one-meter change in clarity on property value are also estimated for an average lake in four real estate market areas in New Hampshire, with effects differing substantially by area. Our findings provide state and local policy makers a measure of the cost of water quality degradation as measured by changes in water clarity, and demonstrate that protecting water quality may have a positive effect on property tax revenues.
