Modelling residential tenants’ choices with a grave as a negative externality
Akinbogun, Solomon Pelumi
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Economic theory considers every household as a rational being operating by the principles of bounded rationality to make a home choice with optimum utility in the residential market. This study investigates the impact of the negative externality of a grave on tenants' residential choice. Using Stated Preference method, the study examines three inter-twined problems of residential choice, willingness to pay and market regulatory mechanism. First, is the question on whether the location of a grave within a home affects tenants' residential choice and social welfare? It hypothesized that there is no significant relationship between income, education, family size and accessibility on the choice of home with grave. Second, is the question on economic value of a grave on a residential property's rent? Third, is the question on the efficiency of the Environmental Health law regulating the residential market? Fourth, is the question on the adequacy of neoclassical economics solution to the negative externality of a grave on residential property. The research methodology is dominantly quantitative. In particular, it applies choice modelling in an experimental study agenda to explore the effect of a residential property with a grave on tenants' residential choice and rent. It also examines tenants' sensitivity to a rent discount on a home with a grave in different parts namely, frontage, side, backyard and room. The context is the Private Renter Sector within the informal residential market in Akure, a State capital city in Southwestern Nigeria. To achieve these raison d'êtres, respondents are presented with discrete residential choices developed by Sawtooth software in a stochastic process. The choice context requires some moment of trade-off to reach a stated choice decision, which reveals tenants' WTP. Data analysis involves the use of basic probabilistic models; namely ordinary least square (OLS) and multinomial logit model (MNL). It progresses to the application of a Hierarchical Bayes (HB) model for a more robust and reliable parameter estimates The study reveals that most of the respondents prefer a choice of un-impacted property. The fixed choice model estimates shows that the majority of them would protect their social welfare by WTP 10 percent above the open market value of a property without a grave. Parameter estimates show that preference varies with respect to different locations of a grave within a residential property. Tenants most prefer a property with a grave at the backyard; this is followed by a preference for a home with a grave at the side, frontage and in a room respectively. The model's distribution of WTP estimates shows that a residential property with a grave would lose between 15 and 20 percent in rental. Sensitivity analysis shows that tenants' responsiveness to a high rent discount on residential property with a grave is inelastic; thus exposing the limitation of a neoclassical economics approach to welfare issues. Parameter estimates on attributes importance and contribution to the residential choice decision show that rent, accessibility and other variables all pale into insignificance in the face of the grave factor. The property market regulatory mechanism exemplified by the Environmental Health Law shows ambivalence and lack of definiteness in its exception to the rule. In conclusion, the study noted that the negative externality of a grave on residential property emerges from the violation of property right and partly the law. It problematizes the law and its' implementation as crucial to tenants' residential choice, rental value and welfare. Consequently, it argues for remedies from both legal perspective and market process; and advances a course for reappraisal of the Burial on Private on Premises Law. Ultimately, it argues for a welfare approach as exemplified in planning values to strike a healthy balance between land use for graves, residential choice, rental and social welfare.