1. Protect Lakes from Eurasian Watermilfoil Invasion
1. Today I will present the paper Dr. Boyle and I have been working on. The title is “Protect Lakes from Eurasian Watermilfoil Invasion”.
2. Eurasian watermilfoil is one species of aquatic invasive plant, which was first introduced into North American in the 1940s and has spread to at least 45 states. Once introduced into a lake, it can eliminate native aquatic plants, reduce biodiversity in the lake and it will form very dense mats, as you can see from the photos, which can greatly reduce the recreational value of a lake.
Congwen Zhang
Kevin Boyle
06/24/2010

2. Research Objectives Applying the hedonic price method to investigate:
If Eurasian watermilfoil invasion affects lakefront property values.
If total aquatic macrophyte growth (both milfoil and native plant) affects lakefront property values.
1. In our paper, we want to apply the hedonic price method to answer two questions: first, if Eurasian watermilfoil invasion affects lakefront property values. By answering this question, we can know people’s MWTP for reducing this kind of invasive species. Second, we also want to know if total aquatic macrophyte growth affects property values.The total macrophyte includes both milfoil and native plants.

3. Our Contribution
First hedonic study to investigate marginal values for an aquatic invasive species.
Marginal losses for milfoil infestation range from $355 (0.33%) to $17,764 (16.35%).
1. The contribution of our paper to the literature is that it is the first hedonic application to investigate the marginal values for an aquatic invasive species.
2.We found that marginal losses for milfoil infestation range from less than 1 percent of average lakefront property values to about 16 percent.

4. Data 4 lakes and a pond in Rutland County, Vermont.
65 property sales from 1990 to 1995 (Single family residential or vacation homes/unimproved lands).
Independent variables include: 9 property attributes, lake fixed effects, milfoil/total coverage.
Aquatic macrophyte coverage ratings: 1-6
1(<1%), 2 (1-20%),…, 6 (81-100%)
1. Before we go to the model, let’s first look at the data.
2. The study area is 4 lakes and a pond in Rutland County, Vermont.
3. There are totally 65 lakefront property sales included in the estimation. They are single family residential or vacation homes or unimproved lands sold between 1990 to The independent variables included in the hedonic price function are 9 property attributes and 4 lake fixed effects dummies.
5. The key variable here is the milfoil or total macrophyte coverage. They are measured by ratings from 1 to 6. Each number corresponds to a percent coverage range. 1 represents less than 1 percent, 2 is 1 to 20 percent, so on and so forth with 20 percent increment.
6. There are several advantages of this measurement compared to previous studies. First, In previous studies, they only have a dummy variable indicating whether or not there is milfoil infestation. But here we know the milfoil or total macrophyte infestation level. Second, the milfoil data are specific to each property.

5. Macrophyte Coverage Milfoil Coverage Total Coverage N mean min max
Beebe Pond 3
2.0 2
5.0 4 6
Lake Bomoseen 37
4.1
4.8
Echo Lake 1
3.0
6.0
Lake Hortonia 9
5.8
Lake St.Catherine 15
3.7 5
3.9
sum 65
From this summary table for macrophyte coverage, we can see that macrophyte coverage varies both within a lake and across lakes.

6. Macrophyte Coverage Milfoil Coverage Total Coverage N mean min max
Beebe Pond 3
2.0 2
5.0 4 6
Lake Bomoseen 37
4.1
4.8
Echo Lake 1
3.0
6.0
Lake Hortonia 9
5.8
Lake St.Catherine 15
3.7 5
3.9
sum 65
Compare mean milfoil coverage, 4.1, and total macrophyte coverage, 4.8, it suggests that milfoil makes majority of the total macrophyte.

7. Hedonic Price Function
Estimation Results
Hedonic Price Function
for Milfoil Coverage
for Total Coverage
Quadratic
Exponential
MILFOIL
TOTAL
0.4475*
0.1344
MILFOIL2
0.0378
TOTAL2 *
exp(MILFOIL)
0.0010
exp(TOTAL) **
No. of Indep.Var. 15
1. Applying the hedonic price function to the data. We come the base results:
2. the left table is for hedonic regression with milfoil coverage. And the right one is for the total aquatic macrophyte coverage. For each of them, we have two hedonic price specifications: quadratic and exponential. These two specifications are used because we assume that the marginal effect of macrophyte coverage is increasing. I only show the key variables here.
3. The results show that the milfoil does NOT significantly affect property values in neither the quadratic nor the exponential specifications. In contrast, both TOTOAL and TOTAL2 terms are significant in the quadratic equation, the exp(TOTAL) is significant and negative in the exponential equation, indicating total macrophyte growth decreases property values.
3. You may notice that the observation number is quite small in our estimation, only 65. while we have 15 independent variables in the hedonic price equation. This can easily result in a low degree of freedom and a high mean square error.
4. To deal with the problem, we use two methods to reduce the independent variables: principal component analysis and all-possible-regressions procedures. Since our base estimations show that only total macrophyte coverage has effect on property prices, I will only show the robustness results for total macrophyte equations.

8. Robustness Check (for TOTAL)
PCA – Total
APR –Total
Quadratic
Exponential
TOTAL
0.6462**
0.1449
0.5118*
Not Selected
TOTAL2
*** *
exp(TOTAL)
*** **
No. of Indep.Var. 11 10
1. The robustness results from the two methods support the baseline results since they show the same pattern.
Down here, it shows that the no. of independent variables decreased from 16 to 11 or 10.
2. The next step is to figure out which specification fits the data better, quadratic or exponential, we apply the J-test to them
PCA: Principle Component Analysis
APR: All-Possible-Regressions Procedure

9. Robustness Check (for TOTAL)
PCA – Total
APR –Total
Quadratic
Exponential
TOTAL
0.6462**
0.1449
0.5118*
Not Selected
TOTAL2
*** *
exp(TOTAL)
*** **
No. of Indep.Var. 11 10
….. and the results show that exponential specification is preferred. Negative coefficient for exp(TOTAL) suggests that total aquatic plant growth diminishes property values. Convert the estimated coefficient to dollar value, it suggests that marginal losses for infestation range from $355 (0.33%) to $17,764 (16.35%).
PCA: Principle Component Analysis
APR: All-Possible-Regressions Procedure

10. Conclusions and Policy Implications
Eurasian watermilfoil, as the primary component of total aquatic macrophyte growth in a lake, significantly and substantially affects lakefront property values.
Marginal losses for infestation range from $355 (0.33%) to $17,764 (16.35%).
Preventing infestations has significant economic benefits to lakefront property owners and local communities.
1. In conclusion, we found that as the primary component of total aquatic plant growth, milfoil significantly reduces property prices even though the milfoil variable, by itself, is not significant. There are several reasons why the milfoil variable is not significant. First, people may not be able to distinguish between milfoil and native plants. Or property owners find aquatic plant growth in total problematic, not just the milfoil. It is also possible that milfoil might be found to be significant if more data were available.
2.From a policy perspective, based on the dollar losses for milfoil infestation, preventing milfoil invasion have significant economic benefits to lakefront property owners and local communities. So state agencies, local communities and lake associations may want to pay for lake monitors to enhance voluntary control.

11. Thank You ! … So that everybody can enjoy watermilfoil-free lakes!!