Does the Eutrophication Control Improve People’s Utility: Evidence from the Second-Hand Housing Market and the Taihu Lake Sludge Removal Project

Abstract

Addressing water body eutrophication often requires substantial and long-term public expenditure. However, due to the public good (PG) nature of water management policies, there is limited research estimating the level of public support for such policies. In 2020, the Chinese government implemented a closed dredging project around the Taihu Lake basin in Wuxi, creating a potential natural experiment. This paper uses second-hand housing transaction data from Wuxi from 2017 onwards. By employing revealed preference and hedonic pricing models, to construct a difference-in-differences (DID) model, the paper evaluates the causal effect of the dredging policy on second-hand housing prices in the Binhu District, aiming to reflect the impact of the dredging policy on residents. The study finds that the eutrophication dredging policy significantly increased the second-hand housing prices by 8% on average in the affected areas, though the duration of this effect appears to be limited. This research provides valuable insights into the economic effects of environmental governance policies and considerations for future water quality management decisions by governments.