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Abstract
The following hypothesis was tested: Willingness to bear a negative water impairment
externality differs between those who do and those who do not receive economic benefit from
the impairment source, e.g., a paper mill. The hypothesis was tested using a hedonic analysis of
ambient water quality in two discrete housing markets in the Pigeon River Watershed, which
have been polluted by the operation of a paper mill. The results suggest that North Carolina
residents of the subwatersheds with impaired river, who experience economic benefits from the
paper mill in addition to harmful effects, do perceive the pollution as a negative externality,
whereas they may have a willingness to bear a similar type of negative externality associated
with impaired streams. In contrast, the effects of both degraded river and streams on property
values is perceived as a negative externality by residents in the Tennessee side, who experience
only harmful effects from the pollution. North Carolina residents may hold greater willingness to
bear the harmful effects of pollution as a given condition in their decision-making process
because they receive economic benefits from the paper mill, while this internalization of the
negative externality is weaker for residents in the Tennessee side.